Concentration begets concentration

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

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

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?

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

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?

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

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

"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

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?

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

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?

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

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

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

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"

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

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

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

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

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.