Colossus: How the Corporation Changed America
The Corporate Structure Has Transformed American Society
SEPTEMBER 01, 2002 by BURTON FOLSOM
Filed Under : Free Markets
The American boy of 1854,” Henry Adams observed, “stood nearer to the year 1 than the year 1900.” A major reason was the development of the corporation and the rise of the United States to a world power during the late 1800s.
In Colossus, editor Jack Beatty, as his book’s subtitle suggests, looks at “how the corporation changed America.” The corporate structure, with its division of labor, vertical integration, and economies of scale, indeed has transformed American society in the last 150 years. Beatty, a senior editor at Atlantic Monthly, collects both primary and secondary sources to chronicle his story of how the corporation has reconfigured American life. He adds his own analysis throughout and also intersperses one-page excerpts from key sources to dramatize the impact of the corporation. Some of his primary sources, such as Roger Taney’s Supreme Court decision in the Charles River Bridge case, are excellent and well chosen; some of his secondary sources are good, too, especially the writings of Alfred Chandler, Paul Johnson, James C. Collins, and Jerry Porras.
Beatty unfortunately tends to overlook the writings of major entrepreneurs, such as James J. Hill’s Highways of Progress, Henry Ford’s My Life and Work, or Andrew Carnegie’s and John D. Rockefeller’s autobiographies. Such omissions are important because Beatty often sees massive problems created by corporations, which, he argues, needed to be corrected by government regulation. He underestimates the ability of free markets to maintain competition and low prices, and he does not seem to understand that regulation seldom has the beneficial effects that the “reformers” seek. The big story, largely untold by Beatty, is that the rise of massive corporations usually did not harm smaller, more innovative competitors. In the early 1900s, for example, tiny Gulf Oil innovated in off-shore drilling and grew steadily at the expense of behemoth Standard Oil. Also, the “great merger wave of 1895-1904,” which Beatty deplores, did not frustrate capable entrepreneurs. The creation of U.S. Steel in 1901–Beatty wrings his hands over that, too–did not spell doom for imaginative competitors; Bethlehem Steel innovated in structural steel and steadily captured market share from U.S. Steel throughout the early 1900s.
On the Great Depression of the 1930s, Beatty faithfully repeats the “underconsumptionist thesis,” which, to simplify, states that the U.S. economy went into a tailspin because rich corporate executives in the 1920s underpaid their workers, who then could not afford to buy the products they made. Historical research has shown, however, that most corporations gave their employees a steadily increasing share of their profits. Moreover, prices on key products steadily dropped throughout the 1920s. As Peter Temin of MIT concluded over 25 years ago: “The concept of underconsumption has been abandoned in modern discussions of macroeconomics . . . [and] is untenable.” Evidently, constant repetition of the statist canard that the free-market system was responsible for the Depression has so penetrated the minds of writers like Beatty that they don’t bother with any research on the point.
After faulting corporations for helping trigger the Depression, Beatty goes on to say, “The New Deal, taken all in all, was a good deal for American business.” In fact, the New Deal was a disaster for American business–high corporate taxes and high personal income taxes siphoned capital away from economic development; regulations interfered with efficient use of resources; unemployment stood at almost 15 percent in 1940, eight years after Roosevelt was first elected. It’s true, as stated in one of Beatty’s sources, that IBM flourished during the 1930s. But Thomas Watson, the president of the company, endorsed Franklin Roosevelt for president and then received the whole punch-card business from the government for the Social Security program. Those who opposed Roosevelt did not do so well.
Beatty’s book is not a thoroughgoing anti-business screed. There is some balance to it. He includes articles that show how many corporations, old and new, have provided excellent employment opportunities, low prices, and good service to customers. The stories of Merck, Hewlett-Packard, and Johnson and Johnson show the remarkable success of visionary companies in capturing talent and markets because they had integrity and cared about their employees and customers.
In short, Beatty’s book is a useful collection of sources on the history of the corporation, but is badly marred by the author’s tendency to trust government more than markets to give customers what they want.