On capitalism, etc.

A nagging question about the rationality of stock markets

2011-12-04T16:55:00.001-06:00

For some time, I have been puzzling over media reports and economic analyses of the movement of stock markets. Almost invariably, the goal is to uncover/understand the thinking of investors, on the assumption that this is what is moving markets. So it makes a lot of sense that the Nobel Prize for Economics was awarded to a pair of economists for their work on "rational expectations" in economic theory.

But the question that has been nagging at me is this: does it really make sense anymore to assume that the stock markets' behavior reflects actual (human) thinking, rational or otherwise? Depending on the market and the source of the estimate, forty to sixty percent of stock-market trading is driven by the algorithms of computer programs. It goes by a variety of names - high-frequency trading, flash trading, automated trading, program trading, robotic or robo-trading - but its essence is that trading is based on pre-defined parameters written into a program. "Thought" obviously goes into the construction of algorithms (though they are proprietary and not open to public inspection), but once a program has been written and put into effect, there's no thinking behind the trade that it executes, no individual's assessment of market conditions as the basis for specific trades.

So the ink, digital or otherwise, that is spilled daily in an effort to discern the thinking of market participants as the key to the markets' behavior seems increasingly futile. Program trading needs to be pulled from the margins of our attention to the center, which, according to a recent report in the New York Times, may actually be happening. As the Financial Times' Jeremy Grant wrote recently of the UK, "there is growing concern that exchanges have moved too far from their traditional role in facilitating capital-raising as they chose other business streams to satisfy shareholder returns." Understanding stock markets - their behavior and their practical function - now requires as much, if not more, attention to the thinking of algorithm writers than to the thoughts of sentient traders.

False efficiencies - the professional "stretch out"?

2011-04-27T11:11:00.001-05:00

In an op-ed piece about "secretaries," past, present, and future, in this morning's New York Times, the following words caught my eye: "we're living through the end of a recession in which around two million administrative and clerical workers lost their jobs after bosses discovered they could handle their calendars and travel arrangements online and rendered their assistants expendable."

Once a clerical worker myself, and having now logged twenty-plus years as a professional, I am struck by the technical inefficiencies generated by this kind of "economic" efficiency. Maybe I'm particularly sensitive to this issue because making some rather complicated travel arrangements for a research trip this summer is consuming inordinate amounts of my time right now. Or maybe it's because I work in a sector of the academy where staff support for individual professionals (rather than administrative units) is virtually non-existent. In any case, this trend afflicts not just the business world but increasingly the legal and medical professions as well as the academy: in the name of economic efficiency, the powers that be are cutting tangible costs by reducing clerical staff and shifting clerical work from clerical workers to professionals. But what about the less tangible costs that this generates in the time that professionals now must devote to clerical work?

Where's the efficiency in having relatively highly paid (in some professions, very highly paid) professionals doing their own clerical work? If the implicit assumption is that professionals will do their own clerical work on top of their regular workload--a professional "stretch out," in other words--that is surely unwarranted. Most professionals already work long hours, so clerical work inevitably cuts into the time one has for professional work. If someone put forward a proposal explicitly recommending that lawyers, doctors, or professors reduce the time they devote to professional responsibilities, in order to free up their time for clerical work, it would end up where it belongs, in the trash bin. Much more efficient--in terms of value for money--would be to retain at least some of the clerical support staff and use computers and the web to enhance their efficiency. Instead, we have false economies and false efficiencies.

Buffett, derivatives, and smoothing earnings

2011-03-23T12:25:00.000-05:00

"Perhaps the most insightful nugget in [Warren Buffett's recent testimony to the Financial Crisis Inquiry Commission]," wrote Andrew Ross Sorkin in the New York Times on March 15, "was Mr. Buffett's explanation of why corporations use derivatives--and why they probably shouldn't." They do it to hedge currency or price risks that can affect their business (examples include Coca-Cola and Burlington Northern)--no surprise there. Or corporations use derivates to smooth earnings. This other "agenda" seems to surprise Sorkin, and Buffett evidently frowns upon it.

What's missing from this picture is quasi-government policy, that of the Financial Standards Accounting Board. As I wrote here in May 2009:

In the nineteenth and early twentieth centuries, many public companies regarded it as prudent to set aside a portion of their earnings as reserves against a rainy day. The idea was that the reserves would enable them to continue paying dividends – and thereby safeguard the market value of their shares – in years when their current earnings were inadequate.

In 1975, this practice was ruled unacceptable by the Financial Accounting Standards Board. Its FAS Statement No. 5 required reserves to be accrued for losses that were “probable” and could be estimated; it explicitly prohibited “reserves for general contingencies” (§14). The board was fully aware of the arguments in favor of a general reserve fund. In its words, “The Board recognizes that some investors may have a preference for investments in enterprises having a stable pattern of earnings, because that indicates lesser certainty or risk than fluctuating earnings. That preference, in turn, is perceived by many as having a favorable effect on the market prices of those enterprises’ securities” (§65). But the alternative to setting aside reserves – purchasing insurance or reinsurance – was preferable, the Board concluded, and it overruled prudence: “Earnings fluctuations are inherent in risk retention, and they should be reported as they occur” (§65).

FAS Statement No. 5 thus tied public firms more closely to the ups and downs of the market (and surely stimulated the insurance/derivatives market as well), with pro-cyclical consequences, as others have noted.[2]

So it's not at all surprising that corporations use derivatives to smooth earnings--what other choice do they have? Now if the Bretton Woods regime of fixed-exchange rates hadn't broken down in 1971, and Chicago institutions hadn't responded by extending the concept of commodity futures to currency in 1972 and then well beyond currencies, they really would have no choice but to let earnings fluctuate in real time.

Aggregation + mobility = power2, or ruminations on corporations, unions, and governments

2011-02-28T23:23:00.000-06:00

This morning's Financial Times offers a classic expression of the "alarmed capital" argument. First articulated in the US in the 1850s, this is an argument against business regulation that highlights capital's ability to up and leave for more favorable jurisdictions:

Manufacturers could shift production out of the US to Canada or Mexico as a result [of Pres. Obama's "anti-business" proclivities], warned George Buckley, chief executive and chairman of 3M.

In the context of the current controversies here in Wisconsin, this has gotten me to thinking about power and the mobility of corporations, unions, and governments ....

Buckley's "manufacturers," as a rule, are not individuals but corporations like 3M. And corporations are collectivities, aggregations of capitalists. To think of labor unions as collectivities takes no leap of the imagination today, but we've lost that perception of corporations. To regain a sense of it, listen to Henry Clay, portraying corporations as safe for a budding democracy in a speech to the U.S. Senate in 1832 (p. [100]):

The joint stock companies ... are nothing more than associations, sometimes of hundreds, by means of which the small earnings of many are brought into a common stock, and the associates, obtaining corporate privileges, are enabled to prosecute, under one superintending head, their business to better advantage. Nothing could be more essentially democratic or better devised to counterpoise the influence of individual wealth.

Corporations and unions, in this sense, are two sides of the same coin--the one, an aggregation of capitalists, and the other, an aggregation of laborers. Organization enables both "to prosecute, under one superintending head, their [members'] business to better advantage."

Recognizing this essential similarity helps us to understand why, in the age of "trusts and monopolies" at the turn of the 20th century, comparably large organizations of labor sprang up just then. The organization of labor, in other words, developed in tandem with the organization of industry. At the Chicago Conference on Trusts (p. 330), hosted by the city's Civic Federation at the height of the Great Merger Movement, Samuel Gompers of the American Federation of Labor described the historical dynamic in these words:

In the early days of our modern capitalist system, when the individual employer was the rule under which industry was conducted, the individual workmen deemed themselves sufficiently capable to cope for their rights; when industry developed and employers formed companies, the workmen formed unions; when industry concentrated into great combinations, the workingmen formed their national and international unions[;] as employments became trustified, the toilers organized federations of all unions--local, national, and international--such as the American Federation of Labor.

And it is why the Sherman Anti-Trust Act of 1890 could be applied to unions, as it initially was.

But capital is generally more mobile than labor, since it's easier to move one's money around than to uproot oneself, one's person. And aggregated capital (a corporation) is more mobile than aggregated labor (a union), because a union is more securely tied to a locality. One can easily imagine 3M moving its operations off-shore, as countless American manufacturers have done. This is what makes the "alarmed capital" argument a credible threat and gives it such potency. But how could a union relocate? And what kind of threat would that pose? The idea seems nonsensical.

The fact that mobility, whether actual or threatened, is a potent weapon in the arsenal of capital, but not of labor, helps to explain the declining power of private-sector unions as the mobility of corporations has increased so dramatically since the 1970s. (Notice that I say "helps to explain"--there are obviously other factors at work as well.) And, by extension, paying attention to the power that derives from mobility helps to explain why public-sector unions have not experienced the same decline: their employers, though also organized (into governments at all levels), are anchored, by definition, to their locality. Governments' inability to threaten to leave town, in effect, levels the playing field for unions. So public-sector unions have tended to retain their strength as the power of private-sector unions has declined.

Viewed from this perspective, what Gov. Walker of Wisconsin is trying to do, in his strident efforts to limit the power of public-sector unions, is to tilt the playing field in the favor of government to the same degree that it is tilted in favor of corporations in private sector.

Unfunded pensions and benefits in WI? Not so much

2011-02-27T15:07:00.000-06:00

One would never know it from Gov. Walker's extremist campaign to limit public-sector collective bargaining rights in Wisconsin, but Wisconsin is one of the best performers when it comes to unfunded pension liabilities and health care benefits. 0n a per capita basis, its liabilities are down there with those of Florida and South Dakota. So reports the New York Times Magazine today in a piece on Gov. Christie of New Jersey, which does really have a problem.

The Times chart is based on a Pew Center on the States' report, which notes:

Some states are doing a far better job than others of managing this bill coming due. States such as Florida, Idaho, New York, North Carolina and Wisconsin all entered the current recession with fully funded pensions.

The Pew report rates Wisconsin a "solid performer" (its top rating) in managing its pension and non-pension obligations.

Isn't it time, Gov. Walker, to drop the pretense and negotiate?

The life and times of "free enterprise"

2011-02-27T11:13:00.001-06:00

The term "free enterprise" is clearly a WWII-Cold War product, at least according to Google's Ngram (searching English-language books published in the US, no smoothing). The results show a very rapid rise during the war and a peak ca. 1945. In British English-language publications, interestingly, use of the term peaked about the same time but it enjoyed a resurgence in the 1980s that was not paralleled in the US.

Cost-cutting by merger - time for the American states to consider it?

2011-02-23T00:09:00.000-06:00

Gov. Walker's CEO talk, together with the pending merger of the New York Stock Exchange and the Deutsche Börse, driven partly by cost savings from combining back-office operations and information technology, has gotten me to thinking ....

What if the United States as a whole brought in a management-consulting team to advise it on ways of cutting costs? I'd bet that the first thing to catch their eye would be the U.S.'s shockingly large number of "divisions," i.e., states. Think about the waste! 50 governors, 50 state departments of this and that, 50 legislatures, and so on, all carrying out more or less the same functions. Not to mention 50 "divisions" competing with each other for resources. No company could survive with such an unwieldy, cost-magnifying structure. How can a nation do so in our increasingly competitive global economy?

Of course, a completely centralized structure (the so-called U-form) hasn't made much sense for businesses of any size since the diversification of product lines (in the 1920s) and then conglomeration (after WWII). The multi-divisional structure built on product lines or product groups has been the structure of choice ever since.

Surely our consultants' top recommendation would be to merge the 50 states into, say, 5 or 6 regional groupings. If the NYSE-DB merger is expected to yield $400 million in annual savings, imagine what the American states could save via a series of mergers that reduced their number to 5 or 6!

Gov. Walker, interested in taking the lead on this one?

When is a CEO not a good Governor?

2011-02-18T12:08:00.000-06:00

Turbulent times here in Madison, Wisconsin, have gotten me to thinking about CEOs and governors.

In his State of the State address on Feb. 1, Scott Walker, Wisconsin's new governor (in case anyone doesn't know that by now), portrayed himself as a "CEO" "hired" by the citizens of Wisconsin. This was by way of justifying his take-charge approach to his new duties, the consequences of which are on full display up on Capitol Square this week.

It is worth noting, first of all, that if Wisconsites did indeed hire a CEO, the man they recruited for the job has no CEO experience in the private sector. By his own account, he worked for IBM while he was a student at Marquette University and then was employed full-time "in financial development" by a non-profit organization. Since 1993 he has been a politician.

And it is precisely because he lacks hands-on experience as a CEO in the real world, I suspect, that he evidently equates being a CEO with being an autocrat. Vision, yes; leadership, yes; decisive action, yes - those qualities are essential in CEOs and governors alike. But what about the process by which one arrives at the point of action? Walker seems to be unfamiliar with contemporary management thinking about the values of collaboration and negotiation in increasing productivity and efficiency. Indeed, Walker's behavior since taking office makes me think of Richard T. Ely's 1887 description of the despotic enterprise, marked by "the unconstrained control of a single man."

Can a CEO be a good Governor? It seems entirely possible, but only if he or she is a modern-day CEO, not a nineteenth-century throw-back like Walker.

Short-selling in the buff

2010-05-22T19:30:00.000-05:00

Ah, the iPad ... My latest technological fix for the problem of finding a way to blog more frequently.

An inaugural, twitterish comment: Nice headline on James Mackintosh's "Markets" column in the Financial Times today - "The bad guys who are running short of friends" - but how could he write it without considering the differences between good old-fashioned short selling and the naked version? Disappointing.

(Apologies for the lack of a link - for some reason I can't get FT.com to load at the moment.)

Way to go, Seth! (with my apologies)

2010-04-15T18:06:00.001-05:00

I erred in my blog about the history of capitalism panel at the OAH (see below): Seth Rockman's Scraping By: Wage Labor, Slavery, and Survival in Early Baltimore (Johns Hopkins University Press, 2008) was co-winner of the OAH's 2010 Merle Curti Award. It was also awarded the 2010 Philip Taft Labor History Book Award. Congratulations, Seth!

Just in time - the history of capitalism

2010-04-15T10:19:00.000-05:00

Economic history - especially in the broader sense - has largely disappeared from the curriculum in departments of history in the U.S. So students who want a historical perspective on the recent transformations of the American (or global) economy have limited opportunities at most universities today. But this may be about to change.

The history of capitalism was the subject of one of the "state of the field" panels at the Organization of American Historians' annual meeting in Washington, D.C., last weekend. The panelists included myself, Sven Beckert (Harvard University), Julia Ott (The New School), and Seth Rockman (Brown University). Bethany Moreton (University of Georgia) chaired the panel, which was organized by Margot Canaday (Princeton).

We drew an enthusiastic, standing-room-only crowd and, at least from the people I talked with, rave reviews. This bodes well for the future of this new field, which seeks to make economic history accessible to historians in a way that it hasn't been for half a century - and just when we need it badly. So does the news that Bethany's new book on Wal-Mart won the OAH's prestigious Frederick Jackson Turner Award and that Seth's Scraping By garnered an honorable mention in the competition for the Merle Curti Award. Departments of history (and their philanthropists), take note!

Hayek vs. Keynes Rap Anthem (YouTube video)

2010-03-24T07:57:00.002-05:00

In lecture last Thursday, my topic was the great slide into depression from 1929 to 1932-33, and I ended - in the obvious place - by emphasizing the lack of consensus about why it happened. A couple days later, a student pointed me to this video. Not sure what the mustaches are about, or why all the women are bimbos, but it's an interesting teaching tool. I'd love to find something similar on the manifold consequences of high fixed costs and Americans' struggle to come to grips with them in the late nineteenth and early twentieth centuries.

Natural persons, artificial persons, and the color of corporations (Citizens United v. FEC)

2010-01-25T23:08:00.006-06:00

Whatever happened to the distinction between a "natural person" and a "fictitious person" (i.e., corporation) or, in Chief Justice Marshall's words in the Dartmouth College Case (1819), "an artificial being, invisible, intangible, and existing only in contemplation of law . . . . the mere creature of law"? The fact that a corporation is composed of natural persons (stockholders) does not make the corporation itself a natural person, and it is ludicrous to think that the founders ever imagined that the Constitution would apply to corporations. Except for the growing number, size, and power of corporations, which were practically non-existent in the U.S. when the Constitution was drafted, the facts have not changed.

An interesting affirmation of Justice Marshall's view occurred in a legal case from 1908 (109 Va. 439) in which the Virginia Supreme Court held that, because a corporation, an artifical being, exists separately from the stockholders who compose it, a "corporation composed of Negroes" is "not a 'colored' person" (quotations from a notice in Michigan Law Review, 7 [Nov. 1908]: 67).

Surely the 19th-century innovation of extending constitutional rights to "artificial beings" is ripe for reassessment.

Or, if the current Court thinking about corporations were to prevail, should municipal corporations also be accorded free-speech rights? Then, on the basis of a referendum perhaps, cities could put their tax dollars behind particular gubernatorial or presidential candidates.

Married to the Market: How We Got There in Five Easy Steps

2009-05-26T00:40:00.004-05:00

The stock market has a much bigger presence in the life of the average American now than it did a couple of decades ago. As a result, the pain inflicted by the current economic crisis has been more widely felt than ever before.

How did we come to be married to the market? Others could no doubt add to this list, but here, in roughly chronological order, are five changes that have helped to tie the knot.[1]

No more planning for the unforeseen

In the nineteenth and early twentieth centuries, many public companies regarded it as prudent to set aside a portion of their earnings as reserves against a rainy day. The idea was that the reserves would enable them to continue paying dividends – and thereby safeguard the market value of their shares – in years when their current earnings were inadequate.

In 1975, this practice was ruled unacceptable by the Financial Accounting Standards Board. Its FAS Statement No. 5 required reserves to be accrued for losses that were “probable” and could be estimated; it explicitly prohibited “reserves for general contingencies” (§14). The board was fully aware of the arguments in favor of a general reserve fund. In its words, “The Board recognizes that some investors may have a preference for investments in enterprises having a stable pattern of earnings, because that indicates lesser certainty or risk than fluctuating earnings. That preference, in turn, is perceived by many as having a favorable effect on the market prices of those enterprises’ securities” (§65). But the alternative to setting aside reserves – purchasing insurance or reinsurance – was preferable, the Board concluded, and it overruled prudence: “Earnings fluctuations are inherent in risk retention, and they should be reported as they occur” (§65).

FAS Statement No. 5 thus tied public firms more closely to the ups and downs of the market (and surely stimulated the insurance/derivatives market as well), with pro-cyclical consequences, as others have noted.[2] When the market speaks (that’s an allusion to my childhood memories of “The Shadow”), it now speaks louder for public firms.

The shrinkage of regulation

A confluence of factors that has shrunk the scope and coverage of regulation has also – inevitably – given market forces a stronger presence in American life than at any time since the 1930s. One is the drive to deregulate American industries that began with the de jure deregulation of airlines in the 1970s, followed by the banking and trucking industries, and continued through repeal of (what was left of) the Glass-Stegall Act in 1999 and beyond. De facto deregulation has also occurred through the de-funding and understaffing of regulatory agencies.

Alongside domestic deregulation, the globalization of financial markets since the 1980s, as many commentators have noted, has also produced an international “race to the bottom,” that is, towards ever laxer regulation. The international competition that drives this race looks very much like the competition among the American states that first gave rise to a “competition in laxity” in the late nineteenth century.[3] In arguing (successfully) against the regulation of derivatives in 2000, Federal Reserve Chairman Alan Greenspan summed up the competitive pressures wrought by globalization in these inimitable words: “I see a real risk that, if we fail to rationalize our centralized trading mechanisms for financial instruments, these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of foreign investors without imposing so many regulatory restraints.”[4]

With large holes torn in the American regulatory net, trading not only of exotic securities but also of commodities such as oil has shifted increasingly to “dark markets,” whose byways are unlighted by regulation. In this sense, we live with the market in ways that we did not before the 1980s.

Incorporation of investment banks

Until the 1980s, the large private investment banks, whose business itself is highly dependent on the state of securities markets, were organized as partnerships. This gave them a measure of insulation from short-term market pressures. Beginning in the 1980s, however, one after the other, they converted themselves into public companies. The last to go over to the short-term-pressured fast lane was Goldman Sachs, which went public in 1999 with Henry Paulson as its chairman and CEO. As a result, large investment banks – like the new investment houses of the 1920s – are now doubly vulnerable to the power of the stock market. For the banks’ clients, this means that not only their stock investments but now the brokerage firms that handle them are subject to short-term market pressures.

“Forced capitalists”

And more Americans are now in the market, whether they like it or not. Leo E. Strine, Jr., Vice Chancellor of the Delaware Court of Chancery, coined the nifty term “forced capitalists” to capture the consequences of the widespread shift from defined-benefit to defined-contribution pension plans in recent years.

Traditional defined-benefit pension plans, which have all but disappeared, once guaranteed employees fixed retirement benefits tied to their wages and length of service. These have now been largely supplanted by defined-contribution pension plans, which carry no guarantee of retirement benefits. Instead, and at best, employers make contributions to employees’ 401(k) plans, which the employees invest in the market. “As a result of these changing dynamics,” observes Vice Chancellor Strine, “most ordinary Americans have little choice but to invest in the market. They are in essence ‘forced capitalists,’ even though they continue to depend for their economic security on their ability to sell their labor and to have access to quality jobs” (p. 7). Millions of Americans, in other words, find themselves in forced marriages with the market.

“Mark to market” rules

Last but not least, a recent FASB accounting rule change has, like the prohibition on general-contingency reserves, tied firms more tightly than ever to the fluctuation of markets – with disastrous results, it turns out, when those markets freeze up. The culprit here is FAS 157 – the Financial Accounting Standard Board’s Statement No. 157, Fair Value Measurements – issued in 2006. This requires that assets and liabilities be carried on a company’s balance sheet at their present market price, rather than at a reasonable estimate of their long-term value. Like the prohibition on general-contingency reserves, this rule was intended to increase “market transparency,” and market transparency translates into greater exposure to short-term market forces. I won’t belabor this point, since it’s gotten a lot of attention in the last year. Try a Google search of “mark to market” and wade through some of its 1,160,000 hits.

This is by no means an exhaustive review of the changes that have brought Americans into more intimate relations with markets. One could add others such as the decline of unions (part of the deregulation, in effect, of labor markets) and the rise of computerized trading (even computerized trading based on computerized reading of the news). But they would merely reinforce my main point: Americans today find themselves on more intimate terms with the market than ever before.

[typos corrected 5/26/09, 7:05 p.m.]

[1] Thanks are due to my students in History 247, who got a preview of this blog in my last lecture this semester.

[2] Cheyenne Hopkins, “Dugan: Turmoil Shows Need for Reserve Leeway,” American Banker, March 3, 2009, on Lexis-Nexis Academic.

[3] Colleen A. Dunlavy, “Bursting Through State Limits: Lessons from American Railroad History,” in The State, Regulation, and the Economy: An Historical Perspective, eds. Lars Magnusson and Jan Ottosson (Cheltenham, UK and Northampton, MA: Edward Elgar, 2002), 44-60.

[4] Joseph Rebello and Dawn Kopecki, “Greenspan Urges Congress to Exempt OTC Derivatives From U.S. Regulation," Wall Street Journal, February 11, 2000, C11.

Cuomo and AIG - a history lesson

2009-03-24T22:13:00.004-05:00

Doesn't anyone know the (peculiar) history of insurance regulation in the U.S.?

Based on the tv coverage of President Obama's news conference this evening, it seems safe to assume that the tv pundits aren't aware of it. In his press conference, President Obama was asked why Attorney General Andrew Cuomo of New York was able to make more headway (regarding bonuses) with AIG than the federal government. What Pres. Obama could easily have said (had he not focused on the questioner's second question) was that the insurance business is one of the few industries (the only industry?) in the U.S. that is still regulated principally by the state governments (click here for a brief synposis). This is despite the fact that the insurance industry -- one of the first businesses (after the slave trade) to expand across state lines -- lobbied Congress for federal regulation after the Civil War. It is precisely because insurance companies have taken on much broader financial activities in the last couple of decades that the Obama administration is (finally) proposing to broaden federal regulation of financial institutions so that it encompasses entities such as AIG.

For details on the post-Civil War efforts on behalf of federal regulation, see Philip L. Merkel, "Going National: The Life Insurance Industry's Campaign for Federal Regulation after the Civil War," Business History Review 65:3 (Autumn 1991): 528-553 (on JSTOR).

[edited to correct typ0]

Govt. intervention? A venerable American tradition

2008-10-14T20:22:00.003-05:00

As debates about how the federal government should respond to the credit crisis have shifted over the last week towards equity stakes in financial firms and initiatives to boost economic growth and create jobs, one thing is clear: Americans need a crash course on the history of their government’s role in the United States’ economic growth. Why we (including reporters and most historians) know so little about that history is a question for another day. The point here is that most Americans have little idea that we have a long and venerable tradition of government action to encourage and support economic growth.

I am not talking about the basic legal framework that has supported the rights of private property throughout our history. We can take knowledge of that for granted, I think. But few Americans realize just how deeply, continuously, and thoroughly the American government has actively supported and encouraged economic growth. A richer sense of our own history—of the impressive support the American government has provided for economic growth throughout our history, and of the multifaceted ways in which it has done so—will help to put current debates in a broader perspective. Knowing what we, as a nation, have done in the past makes it easier to think anew about what we might do today and tomorrow.

Equity Holdings

Take the question of equity holdings by the federal government, which was finally incorporated as an option into the bill that passed Congress last week and now is being actively considered (under competitive pressure from Europe). The idea is that financial aid should be extended in a form that gives taxpayers an ownership stake in companies that receive financial aid. One frequently-heard argument against the proposal was that “we don’t do that” in the United States. Unlike, say, the French or the Germans, we supposedly do not have a long tradition of state ownership of shares in private companies.

But, in fact, we do, and our tradition dates back to the founding. In 1791, two years after the U.S. Constitution took effect, Congress chartered the first Bank of the United States with an authorized capital of $10,000,000—a behemoth institution at the time. The bank was created, amidst raging controversy, to aid the new federal government in managing its finances (federal government securities had to be used in partial payment for stock in the bank). As an equivalent percentage of U.S. GDP in 2007, the Bank of the United States’ share capital would amount to about $671 billion. The bank’s charter limited individual shareholdings to 1,000 shares, but authorized the federal government to buy up to 5,000 shares—which it did. The nominal value of the federal government’s shares—$2,000,000—would be about $134 billion in today’s terms (as a comparable proportion of 2007 GDP).

The first Bank of the United States was allowed to die in 1811, when its twenty-year charter expired, but five years later, in the aftermath of the War of 1812, Congress created the second Bank of the United States for similar reasons. Chartered with a twenty-year life, its authorized capital was $35 million or, as a comparable share of 2007 GDP, about $596 billion dollars. Again, the federal government bought 20% of its shares, giving it a nominal stake in the bank of $7 million, or $119 billion in 2007 GDP dollars.

In our own history, in other words, equity holdings by the federal government were a valuable tool for shoring up the American financial system during its first half-century.

Collective Action Problems

Or consider what the federal government has done in the past to help businesses solve collective-action problems. If the core problem in the credit crisis is uncertainties about the value of exotic, mortgage-backed assets, this is a classic collective-action problem: Individual firms, under intense competitive pressure to attract capital, are unable to do what would be best for the industry as a whole—fully disclose their risks. By tackling this problem, the federal government is building on its own long history of helping businesses solve collective-action problems.

In the 1920s, for example, the Department of Commerce launched an initiative to solve a collective-action problem that was limiting American industry’s ability to mass produce. The problem manufacturers faced was that multiplying their product offerings was an effective way to attract consumers, especially during the post-WWI recession. The result was an “over-diversity” of products that was incompatible with high-volume production. “Mass production” only makes economic sense (as Henry Ford well knew) if the number of products can be limited, but manufacturers were unable to take this critical step towards mass production on their own.

During World War One, the War Industries Board had made important strides in shifting critical industries from craft-based to mass-production methods, but back-sliding set in when the war ended. As manufacturers competed intensely for consumer dollars, the variety of products began to swell again. So Secretary of Commerce Herbert Hoover set up an administrative mechanism for industries to co-operate in reducing the number of products they offered consumers so that they could reap the economies of mass production. Among notable successes achieved by introducing what was called “Simplified Practice” was a reduction in the types of paving bricks from 66 to 4; in types of sheet steel from 1,819 to 263; in types of milk bottle caps from 29 to 1; in types of hospital beds from 67 to 4; and in types of brass lavatory and sink traps, from 1,114 to 72.

Had the federal government acted earlier in the current crisis, it might have done something similar, setting up a mechanism to enable financial firms to act co-operatively—under careful government oversight and with full transparency, of course—so that they could tackle the challenging task of figuring out how to value mortgage-based assets themselves. Instead, with urgent action apparently needed to unfreeze credit markets, the federal government will evidently be taking more direct action, buying up “toxic assets” and recapitalizing banks in hopes that this will get credit flowing again. Once this crisis is over, however, the way that Herbert Hoover facilitated co-operative action among manufacturers in the 1920s might provide a model for the financial industry in the future.

In the meantime, as the government’s mammoth undertaking gets underway, another worthy tradition in American history, now all but forgotten, suggests that the financial industry should be furnishing the needed technical expertise on a pro-bono basis, not as outside contractors working on the taxpayers' dollar to solve problems of their own making. In the emergency mobilization of the American economy during both world wars, leading figures from the business world stepped forward and headed wartime agencies for a token salary. Known as “dollar-a-year men,” they included executives, for example, from AT&T, General Motors, U.S. Steel, and Sears, Roebuck, enlisted for their expertise in communications, manufacturing, and distribution. In the current emergency, financial executives would stand on long tradition if they stepped forward as the twenty-first century’s “dollar-a-year men.”

Investment in the “real” economy

In the coming months (perhaps years), we are likely to endure a sharp contraction of the financial industry, if not the economy as a whole. To ease or prevent an economic contraction, a number of proposals to have the government invest in the “real” economy are in play. Here, too, we have a venerable tradition in American history. It, too, extends back to the early years of the Republic, when the American states funded the construction of thousands of miles of canals, providing some 70 percent of all investment. The tradition continued when railroad construction began in earnest around 1830. American states and cities contributed nearly 45 percent of the capital invested in railroads during the 1830s. Of the $1 billion invested in railroads up to 1860, some 25-30 percent was government funded—in 2007 GDP terms, equivalent to about $800 billion.

This was just the beginning. In the last half of the nineteenth century, the federal government provided millions of acres in land grants to railroads, along with various other subsidies. In the early twentieth century, it subsidized electrification and the extension of telephone service into rural areas. In 1956, Congress passed legislation to build 41,000 miles of interstate highways in what President Dwight Eisenhower proudly lauded as “the greatest public works program in the history of the world.” As a share of 2007 GDP, the cost of the interstate system (some $32 billion at the time) would be equivalent to about $1 trillion. On a smaller scale, there are countless other examples of government investment in the “real” economy—from the War Department's decades-long initiatve in the antebellum years to develop interchangeable parts in gun manufacturing to the decades-long work of the Defense Advanced Research Projects Agency, which gave birth to the inventions underlying the Internet as well as nanotechnolgy.

To offset what seems to be an inevitable contraction of the financial industry, why not build on this venerable tradition? These days we may not be able to afford a project the size of the interstate highway system, but even half of the $700 billion at play in the bailout plan would go a long way towards rebuilding our crumbling infrastructure, reorienting our energy use, making education and health care more affordable, creating jobs, and stimulating consumption (not to mention mortgage payments).

Realigning regulation

The United States will also have to face—once again—the task of realigning the spatial dimensions of business regulation. The mantel of financial regulation seems likely to be expanded within the U.S. to cover financial instruments and entities not currently regulated, but the jurisdiction of U.S. law ends at our borders and the operations of the largest financial firms do not. We faced a very similar situation in the nineteenth century, when railroads became the first businesses (after the slave trade) to cross state lines, challenging and undermining the American states’ traditional powers to regulate transportation.

In a complicated political process spanning the years from the 1850s to the 1880s, punctuated by disastrous rate wars, railroad regulation was realigned to accommodate this new reality. With the passage of the Interstate Commerce Act in 1887, regulation of interstate railroad rates shifted from the state to the national level. In subsequent decades, as other American businesses became increasingly national in scope, so did other aspects of business regulation—always amidst great controversy and never completely so. (Antitrust policy was effectively nationalized after 1890, as was securities regulation during the New Deal, for example, but incorporation policy has remained largely in the hands of the states.)

The financial industry has undergone a similar spatial realignment in the last two decades. Where giant railroad systems spanned the American continent by the late nineteenth century, financial companies now span the globe. As a result, nations today, much like the American states in the nineteenth century, are facing a competitive “race to the bottom” in business regulation. International regulatory competition was one of the factors Alan Greenspan cited in arguing (successfully) against federal regulation of over-the-counter derivatives in 2000: if the U.S. regulated derivatives more stringently than other nations, the derivatives market — and its associated revenues and jobs — would migrate to more favorable jurisdictions.

In the coming years, the force of competition among nations to attract capital is likely to intensify. We can stay the course, dealing as best we can with the periodic crises engendered by the laxity of national regulation that intense international competition promotes, or we can begin the hard work of doing what Americans did in an earlier era—realigning business regulation in light of the new spatial realities of business. In the present environment, fortunately, we would find eager allies abroad if we chose realignment.

As we debate what to do next, let us at least agree on this: the American government has a long and rich history of initiatives, large and small, to support economic growth. “Laissez-faire” is a myth. Our history of government action, in times of crisis as well as in normal times, extends back to the founding. The question today is not whether the government should do something, but what it should do this time. In view of our history, very little is off the table.

The ineffable resilience of capitalism?

2008-01-24T11:00:00.000-06:00

My lecture course is off and running again this week, and as I said to my students on Tuesday, I can't imagine a more exciting time to study the history of American capitalism. For a historian (not to mention those with more intimate connections), the fascinations are endless.

This morning's financial pages have me mulling over two dimensions of the current economic mess:

Risk

This is a core attribute of capitalist activity, as everyone knows. Read the letters of Manhattan merchant Gerard R. Beekman from the 1760s (as my students are doing) and you will get a very concrete sense of the array of risks that traders faced in his time. Over the long haul, business people have continually sought, as he did, to minimize risk, the methods changing as the nature of risks changed. If they ever achieved complete success, of course, not much would be left of capitalism.

What is fascinating about the current crisis in the money/housing markets is that financial people by the 1990s thought they had mastered risk -- for example, by slicing and dicing it into collaterized debt obligations and the like -- only to discover that they had done their work too well. They spread risks so broadly that no one knows for sure where they are anymore and now everyone is potentially at risk. So what's that about? The ineffable resilience of capitalism?

Competition

Another of those core attributes of a capitalist economy. And, like risk, competition is something that business people have spent extraordinary energy trying to reduce -- in the informal ways famously noted by Adam Smith, by means of cartels in the 1870s and 1880s, via mergers during the Great Merger Movement at the turn of the twentieth century, and so on into the early twenty-first century. The resulting oligopolies are so common in so many lines of business that they have become naturalized and thus go largely unnoticed today.

Occasionally, however, events force us to notice them and to confront the reality that oligopoly-building to reduce competition has generated a variety of new risks. Consider the recent financial turmoils: suddenly everybody knows that there are only a handful of big auditing firms, or that only two bond insurance companies carry on most of the business (the big new concern in the financial pages). Success in reducing competition to a handful firms in these lines of business has made large segments of American business dependent on their health, in effect increasing risk for everyone else. The ineffable resilience of capitalism?

Giving shareholders an equal say

2007-10-05T12:54:00.000-05:00

The big news in EU/corporate governance circles in recent days is EU internal market commissioner Charlie McCreevy's decision not to pressure EU companies to adopt one-vote-per-share voting rules. As has been the widespread practice in its pages and elsewhere, the Financial Times characterizes one-vote-per-shares rules as giving "shareholders an equal say." The same thinking underlies the concept of "shareholder democracy" as it is used today. But this is hardly what such rules do.

Here's the text of a letter on this point that I emailed to the Financial Times today. Hope to see it in print!

In your report ("Brussels drops shareholder plan," October 4) and your editorial ("Beating the Retreat," October 5) on EU commissioner Charlie McCreevy's decision to abandon his push for EU companies to adopt one-vote-per-share voting rules, you characterize such rules as giving "all shareholders an equal say." This reflects a fundamental--and unfortunately widespread--misunderstanding of the ways in which shareholder voting rules distribute power.

The only voting rule that gives shareholders an equal say is the Anglo-American common-law practice of giving shareholders only one vote each. One-vote-per-share rules, in contrast, give each share an equal say but concentrate power in the hands of large shareholders. If shareholdings are dispersed, as in the U.S., then power under one-vote, one-share rules tends to end up in the hands of management, especially when shareholders' procedural rights are as severely limited as they are in the U.S.

In practice today, voting rules fall into two broad categories: those that concentrate power in the hands of a minority of shareholders, including not only one-vote-per-share rules but also priority rights and multiple voting rights; and those that, like the spirit of the common-law default, tend to disperse power, such as voting rights ceilings. Portraying the debate as a stark choice between one vote per share rules, on the one hand, and "control enhancing mechanisms," on the other, misses this very important distinction. Multiple voting rights and voting rights ceilings distribute power among shareholders in opposite ways.

Giving "all shareholders an equal say" may be a laudable goal, but that is not what one-share, one-vote rules do.

Management votes by default

2006-10-04T16:00:00.000-05:00

Brokerage firms hold roughly 80% of listed company shares (NYSE only?) and if the owners do not instruct their brokers how to vote their shares, the brokerages vote in favor of management proposals. As a result, reports Gretchen Morgenson, "brokers control an estimated 25 percent of the shareholder vote at the typical annual meeting." (The estimate comes from the London-based organization Governance for Owners.)

The NYSE had proposed to prohibit the practice before next spring's annual meetings but has now decided to postpone the change until 2008 to give companies, especially those that now require directors to receive a majority of votes cast, more time to prepare. Some observers, including at least one member of the working group that formulated the proposed rule change, expressed concern that the rule change had been postponed because of pressure from opponents, which include the Business Roundtable and the Society of Corporate Secretaries. The Roundtable opposes the change "because it would require educating their shareholders on proxy voting issues, yet corporations cannot communicate directly with those who hold their shares at brokerage firms, for example."

Gretchen Morgenson, "Big Board Delays Plan On Voting," New York Times (natl. ed.), 3 October 2006, C1, C6.

Safeguards

2006-09-26T09:19:00.000-05:00

Time for my quarterly blog update (I'll spare you my grumbles about why I can't seem to find time to do this more often).

Why is it that the U.S. seems so persistently to pay less attention to safeguards than its European peers? Of course, as soon as I write those words, I have to ask myself, "Who is this 'U.S.' that you are talking about?" Fair enough--there is no monolith that holds singular values. All we perceive is the de facto outcome of political battles, which doesn't necessarily tell us anything about the specific values that informed individuals' actions. So better to ask: What is it about the U.S. that its policymaking so often slights safeguards?

Three reports in today's New York Times prompt this question. One is on the National Research Council's review for Congress of the National Nanotechnology Initiative established in the 1990s. In the Times reporter's words, "the report cautioned that too little money was being invested in understanding the potential health and environmental risks of manipulating matter on such a small scale [billionths of a meter]."

Barnaby J. Feder, "Study Says U.S. Has Lead in Nanotechnology: A Hopeful Report Also Warns That Risks Deserve More Study," New York Times, 26 September 2006, C6.

The second concerns the U.S. program that permits intelligence agencies to monitor international financial transactions for traces of terrorist activity. The European Union's Article 29 data protection working party reports that the program lacks the safeguard--independent supervision--needed to make it consistent with European law. "That's a crucial point for us," says the German who heads the panel. "There must be independent supervision."

Eric Lichtblau, "Europe Panel Faults Sifting Of Bank Data," New York Times, 26 September 2006, A1, A19. See also Tom Zeller, Jr., "93,754,333 Examples of Data Nonchalance," New York Times, 25 September 2006, C5

The third report is on proposals in Congress to have the Department of Homeland Security build a wall (of fence, vehicle barriers, and electronic surveillance) along portions of the U.S. border with Mexico. In the wrong hands, walls can keep people in as well as out, so some kind of safeguard--e.g., independent supervision--might be appropriate here, too.

Eric Lipton, "Lawmakers Agree to Spend $1 Billion on Tightening Border," New York Times, 26 September 2006, A21.

The overall pattern seems pretty clear, but the reasons for it puzzle this observer.

Ely on economies of scale and competition

2006-06-26T10:26:00.000-05:00

One of my favorite pieces that explores the tensions between economies of scale and competition is a three-part series by political economist Richard T. Ely in the May, June, and July issues of Harper's Monthly Magazine in 1887. His articles were entitled "The Nature and Significance of Corporations," "The Growth of Corporations," and "The Future of Corporations."

Economies of scale vs. competition

2006-06-26T10:04:00.000-05:00

From a historical viewpoint, the tension between economies of scale and competition is unmistakeable, as is the difficulty that the makers of competition policy and economists have had in coming to grips with it. Now, according to a review in the FT, a new book on the history of economic thought takes this as its central theme -- a must-read on my list.

Tim Harford, "Nerds and saints of economic thought," Financial Times (U.S. edition), 26 June 2006, 14 -- review of David Warsh, Knowledge and the Wealth of Nations: A Story of Economic Discovery (W. W. Norton).

Does shareholder culture matter?

2006-06-26T09:47:00.000-05:00

Finally, it seems, the long tussle between Arcelor and Mittal is being resolved. The concept of management culture is a familiar one, and the challenge of merging very different management cultures has long been recognized as a risk factor affecting the success of a merger. But do shareholder cultures matter in a similar way? Judged by the voting-rights provisions in their articles of association, Arcelor and Mittal occupy opposite ends of the prevailing spectrum of governance structures, so the merger, if it is consummated, will offer a good test.

Peter Marsh, "Arcelor succumbs to Mittal," Financial Times (U.S. edition), 26 June 2006, 1.

Challenges of national regulation of international markets

2006-05-25T11:33:00.000-05:00

The Bundesbank has proposed what the Financial Times characterizes as a "system of 'self-regulation plus'" under which hedge funds would "open up their books for public grading by rating agencies and introduce a code of conduct." The proposal reflects concern about the risks entailed by heavy hedge-fund borrowing from banks and recognition "that national regulatory authorities would be virtually powerless if they acted alone."

Ralph Atkins and Mark Schieritz, "German central bank calls for hedge fund openness," Financial Times, U.S. edition, 17 May 2006, 2.

This calls to mind the words with which Alan Greenspan urged Congress in 2000 to exempt the then-$80 trillion market for over-the-counter derivatives from regulation, which illustrated how the "race to the bottom" dynamic, so familiar in U.S. history, works internationally: "I see a real risk that, if we fail to rationalize our regulation of centralized trading mechanisms for financial instruments, these markets and the related profits and employment opportunities will be lost to foreign jurisdictions that maintain the confidence of global investors without imposing so many regulatory constraints."

Joseph Rebello and Dawn Kopecki, "Greenspan Urges Congress to Execmpt OTC Derivatives From U.S. Regulation," Wall Street Journal, 11 February 2000, C11.

More on intra-EU regulatory arbitrage

2006-05-25T11:17:00.000-05:00

"Since a European High Court ruling in 2002, EU companies are free to incorporate anywhere in the region," reports the Financial Times. "Some 30,000 small German companies have since registered as limited companies in the UK, mainly attracted by the lower cost."

The trend is now spreading, it reports, to medium-sized German companies that anticipate expanding and listing publicly. For such firms the attraction of UK incorporation (unlike incorporating as a Societas Europaea or SE) is that it would enable them to avoid Germany's co-determination law, which applies only to German company forms (Aktiengesellschaften)--though that interpretation may be challenged in court.

Gerrit Wiesmann, "Germans eye UK listings as a way out of worker law," Financial Times, U.S. edition, 24 May 2006, 16.

Solutions to regulatory competition in the EU?

2006-05-06T10:58:00.000-05:00

In an op-ed piece in yesterday's Financial Times, a Belgian economics professor argues that "a flaw in the design of the eurozone" that leaves wages policies to be determined by the member states of the EU, rather than centrally, produces an unhealthy competition among the states. He cites the example of German wage restraints, which "improve Germany's competitive position at the expense of the other eurozone countries."

To stop "the downward spiral on wage increases set in motion by Germany," he sees two basic alternatives: either centralize policy in the EU or "further liberalize [EU states'] labour markets so wages are set by demand and supply instead of being dictated by government-sponsored cartels of trade uions and employers' associations."

An historian can't help noticing that the dynamic he depicts looks very "American" -- that is, it resembles the economic competition among the American states that first emerged in the 1850s and reached full force by the 1890s, producing what some scholars call a "race to the bottom" in state regulation. (The competition continues because so much economic policy remains in the hands of the American states. No one really disputes the existence of the dynamic, though assessments of it--good or bad?-- differ sharply.) In the U.S., the outcome of this dynamic was de facto liberalization of labor (and other) markets.

From this standpoint, the available solutions to the EU situation appear slightly differently: either centralize wage policymaking or let state-level competition do its work in liberalizing labor markets. But however one arrives at liberalized labor markets, the U.S. experience suggests that they won't prevent a downward spiral in wages, especially in the 21st-century context of global, inter-nation competition.

Paul De Grauwe, "Germany's pay policy points to a eurozone design flaw," Financial Times, 5 May 2006, 13.

Antitrust in the Noughties

2006-05-06T10:30:00.000-05:00

Current antitrust policy, Stephen Labaton argues in the New York Times, harkens back to the late 1980s--and one might even say, to the 1890s: it takes a dim view of cartels and price-fixing, but generally regards mergers with equanimity.

Much of the article, however, is actually about signs of impending conflict between the Justice Department and the FTC over the latter's effort to combat what appears (to the legal amateur) to be cartel-like behavior--inter-firm agreements in which name-brand drug manufacturers pay generic manufacturers to delay the introduction of rival products.

Stephen Labaton, "New View of Antitrust Law: See No Evil, Hear No Evil," New York Times, 5 May 2006, C5.

What next? Mashups

2006-05-04T11:53:00.000-05:00

Combining data with Google Maps -- a new Internet phenomenon, it seems. I'm a big fan of mapping historical data, especially for lectures. But I'm not really versed enough to do it effortlessly, so I often just can't find the time. Now here's a new twist.

Jane Gordon, "Mapping the Invisible City Outside Their Walls," New York Times, 3 May 2006, A25.

Early computers and national security

2006-05-04T11:31:00.000-05:00

Yesterday's New York Times carried an obituary for Henriette D. Avram, whose career exemplifies both the role of national security in the genesis of the American computer industry and the spill-over effects from that early collaboration. After studying mathematics in the early 1950s at GW while her husband worked for the National Security Agency, she, too, "went to work for the N.S.A., where she learned computer programming." After a hiatus at a software company, she moved to the Library of Congress in the mid-1960s, where she led the project that produced Machine Readable Cataloging, or Marc. In the 1970s, Marc became the national, and then the international standard for electronic library catalogs. It remains the basis for the newest iteration, Marc 21.

Margalit Fox, "Henriette D. Avram, Modernizer of Libraries, Dies at 86," New York Times, 3 May 2006, C15.

Competing social conceptions of the corporation

2006-04-30T22:29:00.000-05:00

Because of the striking differences in their styles of corporate governance, I've been following rather closely the news reports on the efforts of Netherlands-registered Mittal to take over Luxembourg-registered Arcelor. Two recent reports, including a long one on Mittal's governance structure:

Peter Marsh, "Arcelor investors expected to take issue with E4bn loan," Financial Times, U.S. edition, 27 April 2006, 21.

John Plender, "Mittal kingdom: why governance may be an impediment in the pursuit of Arcelor," Financial Times, U.S. edition, 28 April 2006, 9.

In a paper that I presented last month at a conference at Washington and Lee University's School of Law, I used the Mittal-Arcelor case briefly to illustrate competing social conceptions of the corporation today -- will post a link to the article manuscript when I'm finished revising it. Meanwhile, I am delighted to hear that historian Philippe Mioche at the Université de Provence, Aix-en-Provence, is writing an article on the history of the two firms.

For news reports on Arcelor's annual shareholder meeting, held on Friday, click here.

The political creation of uniform markets

2006-04-30T19:50:00.000-05:00

In a preliminary ruling, the European Court of Justice has declared "quite patently discriminatory" the French practice of levying higher taxes on dividends paid to non-residents.

Quoted in Vanessa Houlder, "Decision on withholding taxes set to spur reform," Financial Times, U.S. edition, 28 April 2006, 3.

Principles for Responsible Investment

2006-04-30T19:39:00.000-05:00

An international consortium of pension funds, holding assets of more than $2 trillion, has pledged to adhere to six "principles for responsible investment" that address environmental, social, and corporate governance issues. The underlying assumption is that these issues affect the long-term performance of their investment portfolios.

Mark Turner, "Pensions funds sign pact to ensure ethical investment," Financial Times, U.S. edition, 27 April 2006, 6.

Containerization

2006-04-25T22:51:00.000-05:00

Economist Marc Levinson previewed his new book, The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger (Princeton Univ. Press, 2006) in a column in this morning's Financial Times (April 25, 2006, 17). This sounds like a "must read" for those interested in the history of business, technology, and globalization.

Anyone interested in this topic should also keep an eye out for a forthcoming book by Shane Hamilton, asst. prof. at the University of Georgia and a former undergraduate of mine, on truck drivers and the post-WWII food economy.

Another try

2006-04-25T22:29:00.000-05:00

So my efforts last year to be more concise and therefore more regular in blogging failed abysmally. Also, like so many others, I've been completely overwhelmed by email for the last year.

Techno-twit that I am, I am now trying out a new technological fix to both problems: an amazing little Windows Mobile-based smartphone called the HTC Universal, made by a Taiwanese company. I have Cingular's version of it, simply called the Cingular 8125. Amazing is an understatement. (The screen doesn't actually swivel; it slides. But who cares, given its other capabilities.)

More on cross-border mergers

2005-06-15T12:56:00.000-05:00

For the views of Italy's minister for European affairs on cross-border mergers, see Giorgio La Malfa, "Cross-border M&A does not suit most banks," Financial Times, 2 June 2005, 15.

Most interesting part: "Finally and crucially: the bigger, the less flexible. There are specific, lcoal circumstances even for banking. Italy's industrial production, and with it a large share of the country's wealth, is based on small and medium-sized enterprises, often clustered in lcoal districts. Most of these companies are too small to raise capital on the markets. Access to credit is their lifeline. And local banks have traditionally provided this credit. They have developed over the years a detailed knowledge of their clients' needs that is hard to replace. It is thus a legitimate concern that flexibility and specialisation could be lost in the process of banking consolidation."

There's now a large political-economy literature on flexible specialization as a mode of production in Italy (for an early example, see Charles Sabel and Michael Piore, The Second Industrial Divide).

Access to local knowledge and large-scale banking are not necessarily incompatible, however. Case in point: At the Business History Conference in Minneapolis last month, I heard a paper (by Fed Reserve scholars, if I remember right) on bank branching via merger in California. There the parent banks have tended to retain local executives and managers precisely because of their detailed knowledge of the local community.

Pressures for federal regulation of American insurance companies

2005-06-15T12:31:00.000-05:00

Joseph B. Treaster, "Coalition Seeks a Federal Insurance Regulator," New York Times (natl. ed.), 15 June 2005, C5.

Here's an(other) instance of business pressure for federal in place of state regulation. Business interests (at least the big players) seem fairly united behind the initiative to create "an efficient, uniform regulatory structure" nationwide in place of the usual "patchwork" or "mosaic" of regulation by 50 states (the article doesn't use the latter terms but they are typically used by critics of state regulation). The proposed solution is to give companies the option to be regulated by Washington or their home state. Critics suspect that insurers and bankers see federal regulation -- in the current political environment in Washington -- as a means of deregulation. "'If the federal government was a little less laissez-faire, the insurers and banks wouldn't be doing this,' said J. Robert Hunter, insurance director at the Consumer Federation of America."

The American practice of leaving incorporation policy and broad areas of regulation (insurance, banking) to the state governments seems increasingly anachronistic in an age of globalization. But in many ways it serves effectively to minimize regulation because the state governments have encountered serious legal-structural or political obstacles to regulation since the 1850s.

Background reading on insurance: Peter J. Wallison, ed., Optional Federal Chartering and Regulation of Insurance Companies (Washington, D.C.: The AEI Press, 2000).

Well, so much for my effort to write expediently!

HVB Group-UniCredito merger

2005-06-15T12:08:00.000-05:00

Heather Timmons, "2 European Giants Betting Banks Can Blur Borders," New York Times (natl. ed.), 15 June 2005, C6. Cross-border (German-Italian) bank merger.

Click here for the geneaology of the HVB Group. HVB = Hypo- und Vereinsbank or HypoVereinsbank, and its lineage extends back to the Bayerische Hypo- und Wechsel-Bank AG (1835). The HypoVereinsbank headquarters in Munich had rather extensive archival records, but when I worked in them in the late 1990s, there was a good possibility that the archive would be closed as a cost-cutting measure. Whether that has happened, I don't know, but it would be a significant loss for historians.

Changing format

2005-06-15T11:56:00.000-05:00

Well, my plans for this blog clearly aren't working out the way that I had envisioned. I just can't seem to find time to write up reflective notes about news items that are relevant to my research or teaching, and if I can't do it in the summer, when will I ever be able to? But I don't want to revert to clippings, since I can never find time to organize them either; they just sit around in piles on my desk.

So -- with due apologies to anyone who may have been "listening in" on my browsings -- I'm going to take a more expedient approach. I'll just make brief note of news articles and indicate ever so briefly (cryptically?) why they are interesting. Now let's see if that's a more effective way of keeping track of useful news.

Wealth and democracy

2005-05-12T08:04:00.000-05:00

Whoa! For a mixture of the usual and a few unusual reasons, I've been totally swamped since spring break. Maybe blogging is like exercising -- once you get addicted to it, you can't live without it (so I hear), but until then it's tough to find time for it when the going gets tough. Well, I have a small stack of clippings to report on and I'll chip away at those (so to speak) as time allows. It's finals week here.

For the moment, just a quick comment about Cornell economist Robert H. Frank's column in this morning's New York Times about the estate tax. Popular support for repeal of the estate tax seems to run high, he writes, but how one asks the question can (as usual) make all the difference, and he illustrates this with the results of a (very) small comparative survey.

Robert H. Frank, "Economic Scene: The much-reviled estate tax: efficient, fair, painless as possible and misunderstood," New York Times, May 12, 2005, C2.

Perhaps, as he suggests, when people register opposition to the estate tax, they're really just saying that they oppose taxes in the abstract. But, still, what is striking is the way that concentrations of wealth have become so acceptable, politically and socially. In the usual discourse, there's hardly any recognition that concentrations of wealth might pose a fundamental challenge to a democracy and that the estate tax helps to level the playing field and to stave off the rise of a monied aristocracy in the United States.

Andrew Carnegie, one of the wealthiest Americans in the late nineteenth century, supposedly favored an estate tax (so I understand--I haven't verified this myself) because he thought people should do what he did, work their way to wealth. Granted, he had social access to investment circles (see Pamela Laird's forthcoming book, Pull), and it was arguably more difficult to climb the ladder of capitalism by the late 19c precisely because of the gigantic increases in scale that he and men like him wrought in the world of business. But, in his extensive philantropic activities (e.g., Carnegie-funded public libraries), he did put his money where his proverbial mouth was.

Further reading on this theme: Entering the title of this post reminded me of Kevin Phillips' book by the same title. Also, see the collection of essays entitled Ruling America: A History of Wealth and Power in a Democracy, edited by Steve Fraser and Gary Gerstle.

Ramifications of German Saabs

2005-03-23T14:59:00.000-06:00

General Motors' recent decision to produce Saabs in Germany rather than in Sweden raises a host of interesting issues:

Do consumers care where cars are produced? GM, citing American-made BMW and Mercedes SUVs, doesn't think so. Saab lovers might be different, except that those (like yours truly) who really loved Saabs -- and thus might have cared -- abandoned the car after GM bought the company and changed the Saab's feel.
It is an example of the kind of competition among states to attract or retain business that has gone on in the U.S. since the interstate mobility of capital increased around the 1850s -- but now it occurs on an international scale. In this case, Sweden's offer to improve transportation between the Saab facility and the local port "drew cries of foul from German officials," the New York Times reports. This kind of promotional competition is the flip side of the "race to the bottom" or "competition in laxity" that has shaped regulation by the American states since the mid-nineteenth century.
It also offers a good example of the way that the ability to shift production among plants -- first gained in the wave of horizontal consolidations that culminated in the Great Merger Movement at the turn of the 20th century -- can alter the balance of power between labor and capital, if labor is not also organized on a scale that matches that of capital. In this instance, multinational GM negotiated with nationally based unions in Germany and Sweden. According to the Times, "[a] crucial ingredient [in GM's decision] was a new job contract [in the German plant] that reduced annual wage increases, or in some cases froze wages, and made labor rules more flexible." The German union "also agreed on a plan to reduce the work force by 9,500 by the end of 2007."

Mark Landler, "G.M. Picks Germany, Not Sweden, as Home of New Saabs," New York Times (natl. ed.,) 3/5/05, B3.

Process vs. social conservatives

2005-03-23T13:54:00.000-06:00

I'm certainly not the first one to notice that the Republican position on the proper role of government these days seems rather contradictory. An article in the Times this morning on the Schiavo story, however, introduces an illuminating distinction. There is no "Republican position" as such -- instead, Republicans are divided between "social conservatives" and "process conservatives" (quoting David Davenport of the Hoover Institute). For social conservatives, social issues trump concerns about the allocation of power within the fractured American political structure, while the priorities of process conservatives are exactly the opposite.

Adam Nagourney, "G.O.P. Right Is Splintered On Schiavo Intervention," New York Times (natl. ed.), 3/23/05, A14.

"Social" works in the Schiavo case, but a broader term is needed to encompass those conservatives for whom certain economic issues (e.g., deregulation) also trump concerns about federalism or separation of powers.

More on the "diversity of time"

2005-03-23T13:23:00.000-06:00

It is difficult to understand how people dealt with time on a daily basis before standard time zones were created in the early 1880s.

Case in point: Williams's New-York Annual Register for the year 1834 includes "A TABLE FOR THE EQUATION OF TIME For Regulating Clocks and Watches for the year 1834" (p. 21). The column headings are the months of the calendar, and the row headings are the alternate days of the month (1, 3, 5, etc.). Each cell gives a number of minutes and seconds and either "fast" or "slo." At the bottom of the table appears the following explanation:

How to Set a Clock or Watch by the above Table. -- EXAMPLE. -- January 1st, I find by looking into the table, that the Clock to be right must be 3 minutes and 49 seconds faster than the Sun-dial : therefore, I set it so much faster. And so of the rest. -- Twelve o'clock is the best time to a set a Clock or Watch by a Sun-dial.

NOTE. -- A Sun-dial shows Solar or Apparent Time, but a Clock, &c. should be set to Mean or Equal Time, as the Table directs.

So clocks had to be adjusted every other day to be "right," that is, set to Mean Time; and, although it doesn't say so, one has to assume that this table was accurate only for the longitude of New York City.

Lowest long-term interest rates in 300 years?

2005-03-14T09:50:00.000-06:00

The Guardian Online reports on new research by Professor David Miles, Morgan Stanley economist, suggesting that "long-term interest rates [i.e., yields on 30-year government bonds], adjusted for inflation, could be at their lowest for the past 300 years." He isn't able to explain why, apparently, but the implication is that such low levels are not sustainable.

Charlotte Moore, "Low rates mean long-term liablities," The Guardian, March 14, 2005.

Neo-mercantilism

2005-03-10T23:32:00.000-06:00

Update on the Chinese company Lenovo's offer to buy IBM's PC business: the Committee on Foreign Investment in the United States, "a multi-agency group," has, according to Steve Lohr in today's New York Times, okayed the deal, which had rung alarm bells at the highest levels of the Bush administration and prompted "a full investigation, which occurs in far fewer than 1 percent of cross-border deals." The agency's deliberations are secret -- not much of a surprise there.

Steve Lohr, "Sale of I.B.M. Unit to China Passes U.S. Security Muster," New York Times, 3/10/05, C7.

The article ends on an interesting, rather cryptic note (perhaps due to poor editing?). The second-to-the-last paragraph offers a comment from a member of a Congressional group, suggesting that "Congress [should] . . . review the authority of the investment committee, which dates from the cold war [sic]." The last paragraph quotes an Illinois Republican who "plan[s] to push for hearings to see if the committee's role should be expanded to 'take more account of economic security as well as military security.'"

There's a slippery slope -- defining "economic security." It's difficult these days to discern a coherent Republican position on the role of government; or is this it: minimal in rhetoric; maximal (neo-mercantilist) in practice?

H. Potter unit

2005-03-10T22:22:00.000-06:00

Update on my beautiful Toshiba R-100 ultra-ultralight laptop (codename Sherlock), on which my husband inadvertently sloshed some chicken soup: it arrived at the hospital (Toshiba Notebook Depot) in Louisville, KY, a week ago (3/2/05), is still there, and is still in a coma.

I know this because I can check its status on the web (as I do several times a day), where I can read the (rather cryptic) notes that the technicians have entered. (Techno-twits like myself love this kind of thing -- kudos to Toshiba!) When the technicians got to it last Friday (3/4/05), three entries appeared in rapid succession. The first two entries were labeled "Repair in progress" with various notes about keyboard failure, will not power up, and the like. The last entry was more ominous: "On hold," a string of parts information including "sysbrd" (I recognize "system board," the heart and soul of a computer, when I see it), then "H. Potter unit." Hmmmm, I said, frowning, what could this be.

Thinking it might be code of some sort related to Harry Potter (yes, I read one), maybe to suggest that Sherlock had taken on magical properties, I googled various permutations: no results. So yesterday I called Toshiba's support number to see if I could find out more. The gentleman I spoke with, looking at the same info on the web, didn't know what "H. Potter unit" might mean, but he put me on hold, called the Depot, then returned to inform me that they expected the system board to arrive next Wednesday -- a week after it was ordered: is it coming from Japan?!

Shortly after this, a friend called to inquire about Sherlock and I mentioned this cryptic reference to Harry Potter. His daughter, now 14 years old, has been a Harry Potter nut since the first novel was published. A little later he called me back to tell me that he told her about it and she said -- I can just hear the knowing way in which she said this -- "Oh, 'Harry Potter unit': that means it takes a wizard to fix it." I'm sure she's right. What a powerful impact a little chicken soup can have.

Monopsony and vertical integration

2005-03-07T07:58:00.000-06:00

For the last week or so, I've been teaching about the history of vertical and horizontal integration and their many ramifications in the late 19th century. Vertical integration was the new strategy of the period, developed by men such as Andrew Carnegie (iron and steel) and Philip Armour (meatpacking) who strove singlemindedly to drive costs out of the production process (to put it in today's parlance). The way that Wal-Mart, its core business focused on retailing, uses its great market power vis à vis its suppliers (see earlier post) to drive costs out of the supply chain seems like the functional equivalent of vertical integration in this respect.

Which is the "better" strategy--outright control or preponderant market power? There's no universal answer; it depends on the context, says the historian (an economist may answer differently). Carnegie's markets in the late 19th century were sufficiently large and stable that the risks of investing in control of supplies, labor, and distribution facilities were minimal and the reductions in unit costs that could be achieved by controlling all aspects of the process were substantial. Market conditions since the 1960s have become much more volatile for a variety of reasons, so investing in dedicated facilities/capabilities carries a much higher risk that market conditions will shift and render those facilities/capabilities useless. In this context, it makes more sense to retain the flexibility of contract relationships, using market power instead of outright control to force cost reductions.

A cautionary tale

2005-03-01T19:35:00.000-06:00

This is the time of the semester when everyone--students and faculty alike--gets a bit stressed and . . . accidents happen.

As I reported about a month ago, my quest for an ultra-ultralight laptop ended happily with a Toshiba R-100, an amazing machine: 2.2 lbs. without powercord or extra battery; about 3 lbs with either of those two. (For household purposes, it's codenamed Sherlock, by the way -- long story.)

Well, this weekend, my husband showered it with chicken soup and it's had some proverbial wires crossed ever since. I don't know exactly what the keyboard is doing since I can't enter my password properly, but it's clearly making a hash of keyboard input. On Toshiba's advice, I removed the battery and let it dry out for 48 hours. Still no recovery. Now it's on its way to the Toshiba Notebook Depot in Louisville, KY, where (we are desperately hoping) the laptop wizards will make it good again for not toooo much money.

So be careful out there! More news to follow.

Product placement's long history

2005-02-28T08:11:00.000-06:00

Who knew that product placement had such a long history? Stuart Elliot's New York Times column, Advertising, reports that Turner Classic Movies is doing a product placement series, based on research done by Jay Newell, an asst. prof. at Iowa State. On the trail of products spied in movies, Newell tracked down "a trove of evidence of product-placement agreements" in the 1930s. The earliest dated back to 1896.

Stuart Elliot, "Advertising" [column], New York Times, 2/28/05, C8.

"The irregularity and diversity of time"

2005-02-26T10:31:00.000-06:00

A letter to the editor of the North American Review in 1815 begins this way:

Sir,
I address you on a subject which causes some inconvenience here [Boston], and probably, the same difficulty exists in other parts of the United States; this is the irregularity and diversity of time. There is no common standard, and every district is regulated by a clock of its own. The difference between the time in Boston, and the villages about it, is always considerable, and in some instances it varies upwards of half an hour. There is generally this difference at least between Salem and Boston; this often interferes with appointments in business, and in certain circumstances a criminal might be able to prove an alibi on this very ground. . . . It would be a great convenience to many persons, if every city and village had a horizontal [sun]dial in some publick, central situation. The clocks and watches might then all be regulated by this, and time would have a common regulator.

"Regulation of Time," North American Review, vol. 1:3 (September 1815): 334-335.

The writer's proposal was a very modest one and would not have standardized time, as we know it, over great stretches of the landscape. Standardization occurred in two stages over the nineteenth century. First, American railroads developed a patchwork of dozens of different time zones (the "hardscrabble" system of some 55 time zones, if I remember right). Then in 1880s, in an effort to pre-empt moves in several state legislatures and in Congress to legislate standard time zones (one proposal was for a single, nationwide zone), the railroads, newly organized in a national association, reduced their motley collection to our present-day time zones.

More on currency

2005-02-25T22:19:00.000-06:00

More on American currency since 1861 from the Federal Reserve Bank of San Francisco's American Curreny Exhibit:

Federal Reserve notes are the only U.S. currency issued today. Federal Reserve notes were initially issued in denominations ranging from $5 to $10,000. The $100 note has been the largest denomination printed since 1946. In 1969, all notes greater than $100 were retired because of declining demand.

The design of Federal Reserve notes has changed some over the years. In 1929, the size of the notes was reduced. It also was decided that all currency would have a portrait on the front. Denominations under $100 would have buildings or monuments on the back. The inscription "In God We Trust" was added in 1955.

How could something so familiar be so new?

2005-02-25T20:42:00.000-06:00

The Federal Reserve introduced the one dollar bill in . . . believe it or not, 1963. That's according to the Federal Reserve Bank of San Francisco's excellent website, American Currency Exhibit, which offers historical background as well as lots of beautiful images of currency since the colonial period. I polled a number of colleagues on my corridor the other day and all were, like me, astounded to realize that an object so much a part of everyday life could be so new.

Automation '50s : : Nanotech '00s

2005-02-23T09:35:00.000-06:00

The state of nanotechnology today -- the bottom-up process of manufacturing by assembling atoms and molecules, first envisioned in 1959 by physicist Richard Feynman and more elaborately in 1986 by K. Eric Drexler -- resembles that of automation in the 1950s. Experts and novelists imagine "fantastical future possibilities" for nanotechnology (in the words of a Times reporter yesterday), while actual progress proceeds at a "more mundane" level.

Kenneth Chang, "Tiny is Beautiful: Translating 'Nano' into Practical," New York Times, 2/22/2005, natl. ed., D: 1-4.

For a fictional treatment of nanotechnology, I especially like Neal Stephenson's The Diamond Age: Or, a Young Lady's Illustrated Primer.

Among experts and novelists on automation in the 1950s, John Diebold, author of the classic Automation: The Advent of the Automatic Factory (1952), played the role of evangelist, while Kurt Vonnegut, who caught wind of "numerically controlled machine tools" while working as a publicist at General Electric, envisioned the darker side in his novel Player Piano, also published in 1952. (By the way, I'm not endorsing Amazon.com by linking to its records for these books, but its "search inside this book" tool is so useful.)

Negotiating the shoals of monopsony

2005-02-20T17:46:00.000-06:00

Interesting story in the Times this morning about the lawn mower manufacturer Toro and its successful efforts to sell its machines through Wal-Mart without undermining its brand or alienating its traditional dealers: in effect, Toro has managed to resist the monopsonistic power relations that have generally accompanied Wal-Mart's rise to dominance in retailing.

Dan Mitchell, "Manufacturers Try to Thrive on the Wal-Mart Workout," New York Times, 2/20/05, sec. 3: 3.

Reminders of spring

2005-02-20T17:34:00.000-06:00

Coupled with this morning's wet, slushy snow, the Times' article on Saturday about the shareholder proposals that nuns are preparing for shareholder meetings serves as a reminder that spring -- and the shareholder-meeting season -- is around the corner. This time I'm going to keep a closer eye out for reports of shareholder meetings in Germany, where attendance at the meetings of the biggest companies can reach phenomenal numbers (in the 10,000s). What a contrast with the U.S. (with the lone exception, to my knowledge, of Warren Buffett's meetings).

Leslie Wayne, "Shareholders Who Answer to a Higher C.E.O," New York Times, 2/19/05, B: 1-2.

Reminder in the brouhaha at Harvard

2005-02-20T17:26:00.000-06:00

Today is becoming a day of reminders. The ruckus at Harvard over President Larry Summers' remarks about women and aptitude for science and engineering offers two reminders:

the people who live inside mentalités are the least well-positioned to perceive them; and
sexism still doesn't carry quite the social stigma that racism does.

Closing off "avenues of pursuit"

2005-02-20T17:12:00.000-06:00

The class-action law that President Bush signed on Friday has been getting a lot of attention, as has the U.S. Chamber of Commerce's successful lobbying on behalf of it and other legislative changes. Two interesting aspects to the class-action story, which seeks to foreclose the state courts as a forum for pursuing multistate class-action law suits in which aggregate claims exceed $5 million:

As historian James McPherson once observed, "states' rights" ideology as a rule has served as a means to achieving some more fundamental goal than as an end in itself. Here's a(nother) case in point, where one might have expected states' rights-friendly Republicans to oppose legislation that mandates removal to the federal courts. Instead, they have taken the lead in nationalizing the issue.
It also serves as a reminder that exploiting or fiddling with the American political structure has been a potent weapon in political struggles since the adoption of the Constitution. Legal historian Harry Scheiber pointed out the "avenues of escape," inherent in the structure, that businesses used in the nineteenth century to escape regulation. The structure creates, in effect, multiple opportunities across branches, levels, and geographic units of government for "forum shopping" in search of favorable legal treatment. Branch-jumping,level-jumping, and jurisdiction-jumping (within branches or levels) are all possible avenues of escape or pursuit, depending on the circumstances. In this case, the U.S. Chamber of Commerce (formed at the instigation of the Department of Commerce and Labor in 1912, by the way) and its allies seem to have succeeded in closing off the "avenue of pursuit" offered by the state courts, which have generally been seen as friendlier forums than the federal courts.

David Rogers and Monica Langley, "Bush Set to Sign Landmark Bill on Class Actions," Wall Street Journal, 2/18/05, A: 1, 7; Stephen Labaton, "Quick Victories Encourage Business Lobby," New York Times, 2/18/05, C: 1,2; Gretchen Morgenson and Glen Justice, "Taking Care of Business His Way: Hardball Tactics at U.S. Chamber," New York Times, 2/20/05, sec. 3: 1, 7.

Always room for improvement

2005-02-16T09:14:00.000-06:00

Writing is to an historian like math is to a physicist, and no matter how good you think you are as a writer, I tell my students, you can always do better. On this point, the New York Times offers Verlyn Klinkenborg's testimony this morning in his "appreciation" of Miss Gould, the New Yorker's "venerable arbiter of style" who died the other day:

I never met Miss Gould [he writes]. But deep in a box at home are the proofs of articles I once wrote for The New Yorker, and in the margins is the handwriting of Eleanor Gould Packard . . . . I thought I knew a lot about the English language at the time. I had a Ph.D. in English literature from Princeton, an old-fashioned kind of doctorate with an emphasis on literary history and textual editing. So it came as a surprise to see those proofs. . . .

I reacted the way I suppose many writers did when they first saw a Gould proof--with disbelief and dismissal. But a writer soon learns to welcome anyone who can offer real insight into the nature of prose, and that Miss Gould could certainly do. I learned from her neatly inscribed comments that even though I was writing correctly--no syntactical flat tires, no grammatical fender-benders--I was often not really listening to what I was saying. That may seem impossible to a reader who isn't a writer. But Miss Gould's great gift wasn't taking writers seriously. It was taking their words seriously. No writer, at first, is quite prepared for that.

Verlyn Klinkenborg, "The Point of Miss Gould's Pencil," New York Times, natl. ed., 2/16/05, A26.

Shall I admit it? I love Verlyn Klinkenborg's writing in the same way that I love Marc Bloch, discoveries in archives, a good mystery, and estate-saling.

Where are the women capitalists?

2005-02-14T14:04:00.000-06:00

Harvard Library has just opened a new online collection called "Women Working, 1870-1930." This is the first in its Open Collections initiative, supported by the William and Flora Hewlett Foundation. It provides online access to digitized resources from Harvard's collections on women's work between the Civil War and the Great Depression. The collection currently includes 2,396 books and pamphlets, 1,075 photographs, and 5,000 pages from manuscript collections.

It may give incidental attention to women as capitalists, but, as is true in the academic field of women's history generally, the emphasis is overwhelmingly on women as laborers.

Democracy and corporate governance

2005-02-14T09:36:00.000-06:00

An article in the business section of the Times on Sunday profiled Emil Rossi, a California hardware store owner and corporate investor who for some thirty years has been agitating for greater "democracy" in corporations. He reminds me of Lewis Gilbert, "America's corporate conscience" (according to a media account), who was active from the 1930s through the 1950s (maybe longer--I'm working from memory here; for details, check the intro to my book when it finally appears).

What is striking to me as a historian is how severely limited the concept of democracy in corporate governance has been in the twentieth century. Here it means "[t]he notion that the majority of shareholders should rule," which, despite the Bush administration's pursuit of it in the Middle East, the author tells us, "is still treated as a quaint one, at best, in most American boardrooms." But "the majority of shareholders" doesn't mean majority in numbers of individuals, which is how one normally thinks of democracy, but majority of shares. Still, making shareholder resolutions binding on boards of directors would constitute a big step in restoring control by the owners of the corporation--and in that limited sense restoring democracy.

Patrick McGeehan, "The Agenda: No Democracy on These Ballots," New York Times, 2/13/o5, 3:4.

Female authority in the classroom

2005-02-14T09:15:00.000-06:00

Want some insight into the "work" of being a female faculty member? Check out Dr. Crazy's post, "Thinking About Authority" (which I got onto via insidehighered.com).

I once happened to mention to a couple of male colleagues my annoyance at undergraduates, invariably male, who address me by my first name -- a transparent power play, even if they don't always realize what they're doing. My colleagues were astounded that any undergrads would do such a thing; they had never experienced such a thing. Which left me astounded in turn.

New source of higher ed news

2005-02-14T09:05:00.000-06:00

The NY Times carries a report this morning on a challenger to the Chronicle of Higher Education, www.insidehighered.com, which was founded by veterans of the Chronicle. It's available online only and is free.

What isn't clear on the site or in the Times article is who is paying for it. "Where did the money come from to do that?" -- it's amazing how seldom people (e.g., students) stop to ask this basic question. Here's an example in a story that appeared, believe it or not, in the newspaper's business section! The article does discuss the Chronicle's advertising revenue, so one might infer that Inside Higher Ed will live off advertising, too. But there are no advertisements in evidence on the site, and its "Who We Are" page lists eight staff members. Who's paying for all this?

The business of slavery, no. 2

2005-02-08T14:09:00.000-06:00

A new online exhibit at the Schomburg Center for Research in Black Culture (Harlem, NY) is called "In Motion: The African-American Migration Experience," and one section of it deals with the domestic slave trade, a topic, as I noted in an earlier post, that has been much neglected by business historians. The site offers images, maps, graphs, and text on various facets of the slave trade.

Text adventure game -- World's Columbian Exhibition, 1893

2005-02-07T23:53:00.000-06:00

Here it is, only the fourth week of the semester, and I'm (still) totally backlogged (sigh). Maybe I'll take up historian Patricia Limerick's funny idea of setting up an "apologies" booth at one's professional society 's annual meeting (Western Historical Quarterly 32 (Spring 2001): 5-23). In any case, from now on, when I don't have time for anything more, I'll make only the briefest notes about items of interest (rather than letting the newspapers pile up on the coffee table). Example:

Review of a "text adventure game" set at the World's Columbian Exposition in Chicago, 1893: Brendan I. Koerner, "The Goods: A Game with a Low Body Count," New York Times, 1/30/05, sec. 3: 2.

Counter-factual history

2005-02-07T23:27:00.000-06:00

Cynthia Crossen's columns ("Déjà Vu") in the Wall Street Journal are always a pleasure to read. (Of course, when I finish it, I hope she'll find my book on the history of shareholder voting rights -- how and why one-vote-per-share voting rights came to dominate in the U.S. during the 19th century but not in Europe [= British, France, or Germany] -- interesting enough to warrant a column!)

On Wednesday last week, her column concerned "alternative history" or what is sometimes called counter-factual history. It's true that a few rather far-fetched counter-factual histories gave the genre a bad name, but in one sense counter-factual history is like comparative history: we (historians and everyone else) engage in them all the time on a casual basis, almost as a reflex. It's hard to imagine arriving at any new insight into past events without either measuring those events against other events we know about or speculating about what might have happened instead, had certain (apparently causal) events taken a different course.

Cynthia Crossen, "Déjà Vu: 'What Ifs' Don't Thrill Historians, but They Raise Intriguing Issues," Wall Street Journal, natl. ed., 2/2/05, B1.

Comparing unemployment rates

2005-02-07T13:09:00.000-06:00

"The number of unemployed people in Germany rose to five million last month, the most in the post-World War II period, as the government transferred some longtime welfare recipients to the jobless rolls," reports Mark Landler in the New York Times. As a result the German unemployment rate stands at 11.4 percent. Last year's unemployment rate in U.S., he notes, was only 5.4 percent.

Mark Landler, "German Joblessness Rises as Benefits Are Reduced," New York Times, 2/3/05, C5.

What a striking contrast, further enhanced if one goes by the German rate of 12.1 percent reported in the International Herald Tribune and by the news that the U.S. "unemployment rate dropped to a three-year low of 5.2 percent in January" 2005.

Carter Dougherty, "Jobless Rate in Germany Hits Record," International Herald Tribune: The IHT Online, 2/3/05; Eduardo Porter, "Labor Market Expanded at Modest Rate in January," New York Times, 2/5/05, B: 1,4.

The obvious inference is that the U.S. economy is doing much better than the German, since its unemployment rate is less than half of the German rate.

But how much better is not as obvious as it might seem. As Porter goes on to observe, the latest drop in the U.S. rate came "because hundreds of thousands of people stopped looking for jobs and dropped out of the labor force." (Porter, B1) Meanwhile, the German rate rose because some long-term unemployed workers not previously counted were added to its unemployment rolls. Both the numerator (numbers of "unemployed") and the denominator (size of the labor force) matter, and how they are defined varies by country. On the intricacies of such comparisons, see Constance Sorrentino, "International Unemployment Rates: How Comparable Are They?" Monthly Labor Review, June 2000, 3-20.

Wouldn't it be nice if the major media developed some rule of thumb for translating unemployment rates across countries, rather than merely citing the numbers as if they measured exactly the same thing?

Ultra-ultralight laptop

2005-02-01T23:48:00.000-06:00

Last month I thought my principal choices for an ultra-ultralight laptop (as close to 2 lbs. as possible) were the IBM Thinkpad X40 and the Panasonic Toughbook W2. But the Thinkpad X40 doesn't have a touchpad, and the W2 has limited RAM and a built-in optical drive, which I don't particularly care about and which therefore just adds unwanted weight.

The resolution? I got a Toshiba R100 instead. Don't know how I initially overlooked it, except perhaps that it just wasn't being reviewed as much. In any case, what a gem -- 12.x" screen, very spacious keyboard, and it weighs 2.2 lbs. (sic) with one battery or, with a second battery that gives a total of 6.5 hours of uptime, 3.03 lbs. Extraordinary.

Research Assts. - kitty pix

2005-02-01T23:09:00.000-06:00

Snoozing under the dictionaries.

Ready for the next assignment.

Organized labor in the U.S. - back to the early 1900s

2005-02-01T21:55:00.000-06:00

The percentage of American workers who are members of unions dropped to 12.5% in 2004, the New York Times reported the other day. That includes public-sector workers. The rate for private-sector workers is a mere 7.9%, "the lowest level since the early 1900s."

American unionization levels peaked at nearly 35% in 1945. This compared favorably with the West German peak of 36% in 1951, it should be noted, although the U.S. and Germany have obviously diverged on this dimension since the 1950s.

Steven Greenhouse, "Membership in Unions Drops Again," New York Times, 1/28/05. For the American peak: Paul Boyer, ed., The Oxford Companion to United States History (New York: Oxford University Press, 2001), 429; for the West German peak: Wendy Carlin, "West German Growth and Institutions, 1945-90," in Economic Growth in Europe Since 1945, ed. Nicholas Crafts and Gianni Toniolo (New York: Cambridge University Press, 1996), 467.

Concentration begets concentration

2005-01-28T09:22:00.000-06:00

The proposed Proctor & Gamble-Gillete merger illustrates the historical tendency of concentration in one line of business to foster defensive concentration as suppliers or customers try to restore a balance of power. As the New York Times' reporters put it this morning, "The friendly transaction reflects just how much the balance of power has shifted from consumer products makers to the giant discount retailers, mainly Wal-Mart, in recent years. The deal is a bid by two venerable consumer-products giants to strengthen their bargaining position with the likes of Wal-Mart, which can now squeeze even its largest suppliers."

Andrew Ross Sorkin and Steve Lohr, "Proctor Is Said to Reach a Deal to Buy Gillette," New York Times [natl. ed.], 1/28/05, A1, C14 (quotation from A1).

Mercantilism and IBM-Lenovo

2005-01-27T21:46:00.000-06:00

In talking in lecture the other day about the set of 18th-century policies that constituted what came to be called "mercantilism," I pointed out that, except for the matter of establishing formal colonies, the policies actually look very familiar to us today--for example, the U.S. has sought for most of the twentieth century to keep specific technologies out of foreign hands, generally on national-security grounds. In this sense, it's more accurate to think of mercantilism not as a historical phenomenon confined to the 18th century, but as a set of policies that have great attractions in times of intense international rivalry.

So here's the IBM-Lenovo deal in the news again: turns out that three House Republicans are asking the Bush administration to investigate whether the deal "poses a risk to national security" (reporter Steve Lohr's words).

Steve Lohr, "I.B.M. Deal in China Faces Scrutiny Over Security Issue," New York Times [natl. ed.], 1/27/05, C5.

revision 2/8/05: see also Steve Lohr, "Is I.B.M.'s Lenovo Proposal a Threat to National Security?" New York Times [natl. ed.], 1/31/05, C6.

Synergy redux

2005-01-27T21:30:00.000-06:00

The concept of "synergy" outlived the conglomerate movement in the 1950s and 1960s. Recent example of contemporary usage comes from stock analyst Timothy Horan, discussing the Cingular -AT&T Wireless merger: "Investors are going to give them the benefit of the doubt because the synergies are ahead of them."

Matt Richtel, "Drop in Quarterly Earnings for Cingular," New York Times [nytimes.com], 1/25/05.

Airlines = railroads?

2005-01-24T09:30:00.000-06:00

When is an airline really just a railroad? When its industry is de-regulated. "Airline executives say they never anticipated that deregulation would precipitate a crisis as deep or as long as the present one," Micheline Maynard reported in the New York Times on Sunday. But anyone familiar with the "cut-throat" competition that prevailed in the American railroad industry in the late 19th century wouldn't be surprised by it. What is interesting is that it took so long back then for expert observers outside of the industry to understand the peculiar competitive dynamics induced by high fixed costs--and that they are hardly any better understood today.

Micheline Maynard, "Coffee, Tea or Regulation? As Grumbling Grows About Airlines, Some Eyes Turn to Washington," New York Times, 1/23/05, sec. 3, pp. 1, 4, 12 (quotation from p. 4).

Speaking of govt-bus partnership

2005-01-24T08:53:00.000-06:00

Speaking of the U.S.'s long tradition of government-business partnership in matters technological, . . . Stevel Lohr reports in the New York Times this morning that six technology companies are "forming a consortium [called Globus Consortium] to accelerate the adoption of utility-like grid computing in the corporate world." As with so much of twentieth-century technology, the federal government served as incubator and midwife of Globus Consortium's software for grid computing. "The government provided most of the early finances to develop the software," he writes, "which is freely shared, open-source code."

Steve Lohr, "New Group Will Promote Grid Computing for Business," New York Times, 1/24/05, C7.

Who provided that early financing? Based on past history, the likeliest candidate would be the Department of Defense's Defense Advanced Research Projects Agency or DARPA, and sure enough, as it reported in 2002 (go to http://www.darpa.gov and search for "grid computing"), it was involved, along with the Department of Energy and IBM.

Shareholder democracy?

2005-01-24T01:05:00.000-06:00

From the Wall Street Journal, 1/18/05, B2, yet another indication that the more democratic voting rights that predominated in the early nineteenth century--yes, even in the United States--still prevail in some companies in Europe, in this case, an Austrian company. The WSJ reports that "German engineering company Siemens AG failed to persuade the required number of VA Technologie AG shareholders to change a rule that limits investors' voting rights to 25% regardless of the size of their stake." Dropping the proportional cap on total votes, which had been a condition of Siemens' takeover offer, required a 75% majority (also typical of earlier practice) and Siemen's motion received only 73.2% of the votes cast.

Lessons of history - #2, the dynamics of a federal system

2005-01-24T00:48:00.000-06:00

Re. Laura Mansnerus, "New Jersey Faces Tough Competition for Stem Cell Scientists," NYT, 1/17/05, A16: From a historical perspective, one of the fascinating developments since 1980 (the end of the New Deal era, it seems) has been the revivial of state governments as potent policymakers. This story is about the competition among some American states--most recently, New Jersey--to develop stem-cell research capabilities, now that the Bush administration has removed the federal government from this field of activity. Interstate competition will prove to be a boon for stem-cell research, at the same time that it produces, in the words of Daniel Perry, president of the Coalition for the Advancement of Medical Research, "duplication and splintering in research," hence, "a crazy-qult pattern across the U.S." The dynamic here is the same as that in the history of incorporation policy in the U.S., one of the few policy areas not to have been federalized between the 1880s and the 1970s. In incorporation policy, interstate competition brought about the (in)famous "race to the bottom" (that is, towards ever laxer regulation) and it's hard to see how a similar result can be avoided in this case.

Lessons of history - #1, govt-bus partnership

2005-01-24T00:10:00.000-06:00

"Is less government really better for business? Not if history provides a reliable guide." So reads the subtitle of Jeff Madrick's column, "Economic Scene," in Thursday's New York Times (NYT, 1/20/05, C2).

Madrick is absolutely right. The only problem is that he doesn't sort out differences over time in the roles of the federal and state government. As a result, he neglects to mention that "an active partnership between government and business" actually generated enormous controversy before the Civil War when the government in question was the federal government. This was largely because acceding to an activist federal role in promoting internal (transportation) improvements, banking, or domestic manufacturing threatened to open the door to federal abolition of slavery. "An active partnership between government and business" did indeed characterize the U.S. in both the nineteenth and twentieth centuries, but the locus of government action shifted from the state to the national level in the nineteenth century as the biggest businesses crossed state lines with increasing frequency. Regulation of steam boilers on interstate waters (1850s - if I remember right) and creation of the Interstate Commerce Commission to regulate interstate railroad rates (1886) marked the first steps, and the decisive movement came during the New Deal.

Capita, capital, capitalism

2005-01-22T16:25:00.000-06:00

What do capita (as in per capita) and capital (as in capital punishment) have to do with capitalism, wonders a friend in northern MN. Up there it's been really cold--serious double-digits below zero--which gives people lots of time to think up questions like this. His answer: capita is the plural of caput, which mean "head," and capital means wealth. So if you own many coins with the ceasar's head on them, you have much capital. Well, maybe, but it's clearly time to refresh my memory of the history of the words capital and capitalism.

Wordorigins .com: "The . . . term, capital, has various senses, meaning punishable by death, principal, a seat of government, and wealth used in an investment. This word derives from the Latin caput, meaning head. It made its way into English from Old French via the Normans."

OED Online: Among its definitions of capital as a noun is the following: "3. A capital stock or fund. a. Commerce. The stock of a company, corporation, or individual with which they enter into business and on which profits or dividends are calculated; in a joint-stock company, it consists of the total sum of the contributions of the shareholders. Also, the general body of capitalists or employers of labour, esp. with regard to its political interests and claims (cf. LABOUR n. 2b). b. Pol. Econ. The accumulated wealth of an individual, company, or community, used as a fund for carrying on fresh production; wealth in any form used to help in producing more wealth. " First instance of use cited: "1611 COTGR., Capital, wealth, worth; a stocke, a man's principall, or chiefe, substance" (= Randle Cotgrave, A dictionarie of the French and English tongues 1611).

It defines capitalism as: "The condition of possessing capital; the position of a capitalist; a system which favours the existence of capitalists." First use: "1854 THACKERAY Newcomes II. 75 The sense of capitalism sobered and dignified Paul de Florac."

Finally, a small extract from the entry on capitalism in Raymond Williams, Keywords: A Vocabulary of Culture and Society, rev. ed (Oxford, 1983), 50-51 (original emphasis):

Capitalism as a word describing a particular economic system began to appear in English from eC19 [early 19th century], and almost simultaneously in French and German. Capitalist as a noun is a bit older . . . [he then cites Thomas Hodgskin's use of it in Labour Defended against the Claims of Capital (1825).] This is clearly the description of an economic system.

The economic sense of capital had been present in English from C17 and in a fully developed form from C18. Chambers Cyclopaedia (1727-51) has 'power given by Parliament to the South-Sea company to increase their cpaital' and definition of 'circulating capital' is in Adam Smith (1776). The word had acquired this specialized meaning from its general sense of 'head' or 'chief': fw [immediate forerunner word] capital, F[rench], capitalis, L[atin], rw [root or ultimately traceable word], caput, L -- head.

More coming soon -- life has been exceptionally hectic in the last week or two with the beginning of the semester, a kitty with diarrhea, and local rezoning issues coming to a head.

Diminishing varieties of capitalism?

2005-01-13T12:57:00.000-06:00

Yesterday's Handelsblatt reported that Allianz, Münchener Rück, and Commerzbank just sold their shares of MAN (Maschinenfabrik Augsburg-Nürnberg). Their combined holdings amounted to 25% of MAN's capital (valued at more than a billion euros), and they had held the shares for more than thirty years. "The sale [translating roughly] constitututes one more step down the road to dismantling the close relationship between financial and industrial firms in Germany," the article observes. MAN now has only one major shareholder (the insurance firm Axa), which has 5% of its shares; the other 95% are widely dispersed (= "Streubesitz"), which is more in line with U.S. conditions.

"Großaktionäre steigen aus -- MAN jetzt allein unterwegs," Handelsblatt, 13 January 2005, 1.

By the way, newspaper readers, if you haven't checked out Pressdisplay.com, do so! It offers (for a modest price) access to some 200 newspapers from around the world, and the resolution is fabulous.

Worldly history

2005-01-13T10:20:00.000-06:00

Yesterday's New York Times carried an obituary for Robert Heilbroner, author of The Worldly Philsophers: The Lives, Times, and Ideas of the Great Economic Thinkers. Currently in its seventh edition, the book has been in print continuously since 1953. What an amazing achievement (not to mention that he wrote it as a twerp, academically speaking).

Teaching "worldly history"--that is, the history of capitalism or any of the subfields that compose it: business, economic, political economic, technological, etc. history--is always a challenge because most students who are attracted to history gravitate to social, political, or cultural history and are put off by anything smacking of the "economic." This semester I will be teaching a comparative history seminar on the U.S. and German political economies since the 1870s. I'm using Heilbroner's Worldly Philosophers as one of the course's foundation stones in hopes that it will get the students past their fears of the economic and give them a basic knowledge of the historical range of perspectives on economic change before we delve into the details of the U.S. and German political economies.

The seminar should be a lot of fun since the U.S. and Germany, industrial upstarts that they were, looked more similar than different in the 1870s but ended up in our own time as exemplars of opposing models of capitalism (liberal vs. coordinated market economies--see, for example, Peter A. Hall and David Soskice, Varieties of Capitalism).

Corporate governance has arrived?

2005-01-11T22:17:00.000-06:00

As a New York Times editorial observes today: "corporate governance, a relatively obscure issue a few years ago, has now grown big enough to generate its own scandals."

"New Twist on Corporate Goverance," NYT, 1/11/05, A26, emphasis added--the rest of piece is about the "forced resignation" of the director of Yale's International Institute for Corporate Governance.

The creation of Yale's institute in 1999 was one sign that corporate governance had become a recognized "issue" in the academy, its importance affirmed by the corporate scandals of recent years. But business historians have been much slower on the uptake. Aside from a few works by legal historians and the 1932 classic, Private Property and the Modern Corporation by Berle and Means, there are hardly any studies of the history of corporate governance, especially in the years before the 1930s.

Why so little attention by historians? One reason is that business historians tend to conflate the history of big business, on which a great deal of research has been done, with the history of corporations. As a result, most of my colleagues don't realize how little we actually know about the history of corporations per se.

More on Yukos and jurisdiction shifting

2005-01-10T23:09:00.000-06:00

Is it me or the season? Doesn't seem like there's much of interest these days in the business pages -- or maybe it's just that I'm too swamped with the approaching semester and a variety of other obligations to keep up.

In any case, here's the only item of note recently: More on Yukos' efforts to shift its battle with the Russian government to U.S. terrain in Simon Romero and Erin E. Arvedlund, "U.S. Court to Hear Arguments for Dismissal of Yukos Case," NYT, 1/7/05, C5.

Catching up - quick notes on clippings

2005-01-02T22:29:00.000-06:00

Survived the holidays (sans snow); two new kitties are keeping the household busy; and only two weeks until the new semester begins - ye gads.

More on the transnational, transcultural aspects of the IBM-Lenovo deal: David Barboza, "Outsourcing to the U.S.," NYT, 12/25/04, c1, 2, on Lenovo's relocation of its headquarters to Armonk, NY, in the wake of its purchase of IBM's PC unit.

Obituary for Richard J. Barnet, co-author of Global Reach (1974) on multinationals: NYT, 12/24/04, A16.

On the mysteries of hedge funds that trade convertible bonds (an innovation of nineteenth-century railroads, by the way): Susan Pulliam, "How Hedge-Fund Trading Sent a Company's Stock on Wild Ride," WSJ, 12/28/04, A1, 6.

One advantage of the online edition of the Wall Street Journal over that of the New York Times: WSJ articles include illustrations; those for the NYT don't, although one may purchase copies of photos (not graphics, which is a big loss for teachers like me who like to use them in the classroom--guess I'll keep clipping in some instances).

Wal-Mart, together with the Department of Defense and the Food and Drug Administration, is pushing its suppliers to adopt the new technology of radio tags and meeting some resistance: Barnaby J. Feder, "Despite Wal-Mart's Edict, Radio Tags Wil Take Time," NYT, 12/27/04, C3. Historical echoes: the fate of Philadelphia's independent, small-scale textile producers after the rise of powerful customers (department stores), and the U.S. Ordnance Department's lengthy efforts to develop interchangeable parts manufacturing technology.

Obituary for James L. Ling, builder of conglomerates: NYT, 12/26/04, 31.

Backyard temps

2004-12-22T08:03:00.000-06:00

The temperature seems to be moving in the wrong direction this morning. When I got up, our thermometer reported 0.7F in the backyard; now it's down to 0.0F.

"The Evolution of Manufacturing"

2004-12-22T07:08:00.000-06:00

From the email list H-Business@H-Net.msu.edu comes the following. Compare the earliest piece--Henry Ford's 1909 article on "System"--with the NYT article on Dell the other day (see my post on "flexible mass production"):

[Forwarded from AIB-L, a list for the Academy of International Business. Note that the format of this sponsored archive, in which the company selects the articles with which it wishes to be associated, is itself an interesting development. The focus on narratives of technological progress is hardly surprising; others may wish to comment on the specific articles that have been reproduced. Also, from a practical perspective, H-Business members may wish to store soft copies of some of the articles for future use. - ed.]

For those interested in a historical perspective on manufacturing operations in the U.S., there is a collection of original New York Times articles that is being made freely available online for a limited time. The collection consists of 12 articles published between 1909 and 2000. The archive is sponsored by PeopleSoft, and it is not apparent how long it will be available. The articles can be accessed from a link in the Business section of www.nytimes.com or with the direct link shown below.

The Evolution of Manufacturing
http://www.nytimes.com/ads/peoplesoft/
--
David A. Kirsch
Co-editor, H-Business

Capitalism and democracy

2004-12-21T07:02:00.000-06:00

This morning's NYT article on the Yukos auction quotes Robert Mabro, chairman of the Oxford Institute for Energy Studies:

"You've got to compare Russia to other oil producers like Iran or Saudi Arabia, not democracies like Denmark or Holland. After 80 years of communism, you don't turn into a liberal democracy overnight. That's a romantic notion that has no historic foundation."

That "romantic notion" likely derives from the theoretical economic determinism that sees capitalism as automatically giving rise to democracy. Certainly there are liberalizing pressures at work, visible in this case in the response of international investors to the Russian government's actions. But historically more accurate is sociologist Theda Skocpol's observation that capitalism has proven compatible with a wide variety of political systems: "capitalism in general has no politics," she notes, "only (extremely flexible) outer limits for the kinds of support for property ownership and controls on the labor force that it can tolerate." (Politics and Society 10 [1980]: 200.)

Flexible mass production

2004-12-20T17:19:00.000-06:00

Fordism + scientific management + computers = flexible mass production, aka Dell: Gary Rivlin, "Who's Afraid of China? How Dell Became the World's Most Efficient Computer Maker," New York Times, 12/19/04, sec. 3, pp. 1, 4.

Govt. & business in a global age

2004-12-20T10:58:00.000-06:00

The news last week that the Russian oil company Yukos had sought bankruptcy protection in American courts offered an interesting example of the phenomenon of "jurisdiction-shifting," one of several ways of exploiting fractures in a political structure to gain political advantage. In this case, Yukos is seeking protection in U.S. courts from the Russian state, in essence seeking to shift the struggle from one jurisdiction to another in hopes of gaining a more favorable hearing. Other techniques that emerged in battles between railroads and the American states in context of the U.S.'s federal-legislative structure in the 19th century: branch-shifting and level-shifting.

(For more, see Colleen A. Dunlavy, "Bursting Through State Limits: Lessons from American Railroad History," in Private Actors and Public Interest: The Role of the State in Regulated Economies, eds. Lars Magnusson and Jan Ottosson [Edward Elgar, 2001], which was inspired originally by legal historian Harry Scheiber's article "Federalism and the American Economic Order.")

The business of slavery

2004-12-20T10:37:00.000-06:00

Catching up on the news . . . (I've been consumed with end-of-the-semester obligations, which included giving an exam on Saturday evening [sic]).

Thursday's New York Times had an article (NYT, 12/16/04, D1, 9) about small steps taken recently to commemorate the slave market in Natchez, which was second in sales only to the New Orleans market. Although slavery is a standard topic in American economic history, the business of slavery has been flat-out ignored by business historians. This is not so surprising, given the historical orientation of the field of business history around big business and mass production, but it is shocking to realize that we know so little about a business that was so signficant and pervasive in the antebellum period, in North and South. Walter Johnson is not a business historian himself, but his book, Soul By Soul: Life in the New Orleans Slave Market (if I remember the subtitle right), does an admirable job of opening up the subject--"must" reading for business historians.

In the "holy smokes" category

2004-12-14T23:45:00.000-06:00

Wow. The Google-organized project to digitize library materials is breathtaking in its ambitions (NYT, 12/14/04, A1, C3; WSJ, 12/14/04, D1, 4). And what a boon for historians in search of primary sources, since only works on which copyrights have expired will be available in their entirety.

No appreciable snow in sight here in Madison, Wisconsin. This reminds me of Decembers when I was growing up on the farm in Minnesota and worried that we wouldn't have snow in time for Christmas. The temperature this morning reminded us with all the crystal clarity of a sunny-cold morning (11.4 F--"bitter cold" in NY/NJ televison parlance) just how spoiled we've been so far this fall.

Signs of a new era of capitalism?

2004-12-14T21:47:00.000-06:00

Noteworthy in the New York Time this morning: Adam Cohen's piece on the editorial page (NYT, 12/14/04, xxx) about efforts to return to the pre-1937 state of regulation in the U.S. Advocates, he reports, refer to the U.S. Constitution before 1937 (by which he means, I assume, before the 1937 Supreme Court decision upholding the Wagner Act) as the "Constitution-in-Exile."

In my last lecture of the semester this afternoon, I talked about some of the changes in the world of American business since the 1970s that strike the eye of a business historian. Regulation is one of several arenas in which, it seems to me, one can discern fundamental discontinuities, radical departures from the patterns of change that have prevailed since the late nineteenth century. The subject of Cohen's article is a piece of that history.

Also of note: the German stock exchange (Deutsche Boerse) is proposing to buy the London stock exchange (NYT, 12/14/04, B1?). The concept of nationality may be losing its meaning faster in the world of business than anywhere else; certainly the best evidence of globalization is to be found in the world of finance. Or we may discover that the nationality of ownership has little to do with political nationalism. Or that corporations have become extremely skilled at disguising their nationality.

Good and poor quality business reporting

2004-12-13T09:33:00.000-06:00

Nice article by Steve Lohr this morning in the New York Times on the IBM-Lenovo deal. Just as I thought: "I.B.M. Sought a China Partnership, Not Just a Sale" (NYT, 12/13/04, C1, 6). Too often the graphs that accompany business reporting cover such a brief period of time that it's difficult or impossible to discern the long-term trends. This story offers a nice exception: a chart of the sources of IBM revenue that actually covers 20-odd years (1982-2003). It shows clearly a relative shift away from hardware between 1988 and 1994.

Now if the chart had only presented the data in real as well as current dollars. In current dollars, it shows IBM's total revenue increasing 159% (from $34.4 billion in 1982 to $89.1 billion in 2003), which averages out at 7.57% annually. But in 2003 dollars (deflated with the CPI), its 1982 revenue stood at $65.6 billion, so in real terms its revenue increased only 35.8% or 1.7% annually over the twenty-one year period. Rather a different picture.

Maybe I'm just a bit sleepy this morning but I cannot figure out what Andrew Ross Sorkin's article, "Icahn Accuses A Hedge Fund Of Stock Manipulation" (NYT, 12/13/04, C1, 2), has to do with buying shareholder votes. It refers to the allegation twice, mentioning it in the third paragraph and ending the article with this: "But there has been a long debate about whether shareholder voting rights must be tied to shareholder ownership." But the article never makes explicit how this issue relates to Icahn's dispute with the companies in question.

Last item of note: M.I.T.'s Technology Review has been revamped once again (NYT, 12/13/04, C4). As the reporter, Victoria Shannon, notes, the last go-around in 1998 "injected a cheerleading breathlessness into its coverage that left some academics cold." Its rah-rah approach to technology reporting certainly left me feeling frigid. But what is that at the end of the article? "'The earlier Technology Review was more likely to look at the social and political dimensions of science and technology.' [The Review's editor] Mr. [Jason] Pontin promised a grounded approach this time. 'We want to be skeptical.'" Maybe Pontin was quoted inacurately, but if not, how could he possibly equate attention to "the social and political dimensions of science and technology" with a lack of skepticism? Mr. Pontin clearly needs to spend some time talking with the faculty in M.IT.'s own Program in Science, Technology, and Society. (Is a disclaimer called for here? I'm an alum of the program.) For more balanced coverage, I prefer Wired.

Sunday morning reading + viewing tips

2004-12-12T15:33:00.000-06:00

Recommended reading in the New York Times (national edition) this morning and some viewing tips:

Peter Applebome, "Our Towns: How a Working Man's Money Went Into a Closet and Came Out of Fortune," NYT, 12/12/04, 33,

on the soon-to-be-auctioned-off currency collection of Malcolm A. Trask (1901-1889), New York subway motorman. The story includes a photo of a $10 note issued in 1878.
For more images of currency and coins, try the American Numismatics Association's Virtual Museum.

Timothy L. O'Brien and Larry Rohter, "The Pinochet Money Trail: A Dictator's Mysterious Cash at Riggs Bank," NYT, 12/12/04, Sec. 3, pp. 1, 12.

Of documentaries on multinationals, producer Larry Adelman's "Controlling Interest" (California Newsreel, 1978) is exceptional for the interviews that he conducted with MNC executives in the mid-1970s.

Corporate governance in China

2004-12-10T12:19:00.000-06:00

In my undergraduate lecture course on American business history, I often take a few minutes at the beginning of class to talk about stories in the news recently. Most of those are stories in the New York Times simply because I read it before the Wall Street Journal every morning and some days I don't get to the WSJ until the evening. So today's "harvest" marks a change of sorts: the interesting news seems mainly to come from the Journal.

Case in point: In the "World Watch" column (WSJ, 12/09/04, A14), a brief report entitled "China Gives Minority Shareholders Bigger Role" from Dow Jones Newswires. Unfortunately, it's a tad opaque (incoherent?), so I will have to dig up more/better information elsewhere. But the gist of it is that the Chinese government is limiting the governance power of government investors, who hold "nontradable shares accounting for two-thirds of the value of the average listed company in China," thus enhancing the power of private shareholders. But, interestingly, shareholders cannot vote by proxy--they must actually attend shareholder meetings in order to vote. Here's where the murkiness enters in: it is unclear in the report whether the new regulations establish this practice or encourage companies to permit voting by proxy.

I'll dig up more info on this when I have chance. But first I have to tackle a pile of student paper drafts that need grading. Good task for a dark and wet afternoon in the Upper Midwest. I have my fingers crossed that we'll finally get a few flakes of snow.

Thinking of Thinkpads, etc.

2004-12-10T11:32:00.000-06:00

The IBM-Lenovo stories remind me of my ongoing search for an ultra-ultralight laptop. Will anyone ever break the two-pound barrier with a 12" screen so I can live with my laptop in hand (or in purse/briefcase)? The Thinkpad X40 and Panasonic's Toughbook W2 both reportedly weigh in at about 2.7 lbs. But the Thinkpad doesn't have a touchpad, so that's out for me. Now if the Toughbook would just forego its built-in optical drive and beef up its max. RAM to a gigabyte or so, shedding a pound in the process . . . .

IBM-Lenovo

2004-12-10T11:21:00.000-06:00

How twenty-first century! The most interesting aspects of this cross-border, cross-culture deal are the ongoing entanglements: IBM will reportedly buy 20% of Lenovo, while Lenovo will buy "world-wide service and warranty work" from IBM (on the latter point: WSJ, 12/10/04, B4). Sounds more like a joint venture than a sale.

Most interesting story I've read about the IBM-Lenovo deal: Yale computer science Prof. David Gelernter's column in the Wall Street Journal this morning: "How to Build a Better PC? Don't Give Up." (WSJ, 12/9/04, A16) His basic point: other pathbreaking technologies (automobiles, airplanes) underwent transformations when they were as old or older than the PC, and the PC could, too. I'd love to have all of the (mainly software based) features he envisions, especially the email "acknowledge" function.