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- Herausgeber: John Wiley & Sons
- Kategorie: Geisteswissenschaft
- Serie: The American History Series
- Sprache: Englisch
Tells the story of how America’s biggest companies began, operated, and prospered post-World War I
This book takes the vantage point of people working within companies as they responded to constant change created by consumers and technology. It focuses on the entrepreneur, the firm, and the industry, by showing—from the inside—how businesses operated after 1920, while offering a good deal of Modern American social and cultural history. The case studies and contextual chapters provide an in-depth understanding of the evolution of American management over nearly 100 years.
American Business Since 1920: How It Worked presents historical struggles with decision making and the trend towards relative decentralization through stories of extraordinarily capable entrepreneurs and the organizations they led. It covers: Henry Ford and his competitor Alfred Sloan at General Motors during the 1920s; Neil McElroy at Procter & Gamble in the 1930s; Ferdinand Eberstadt at the government’s Controlled Materials Plan during World War II; David Sarnoff at RCA in the 1950s and 1960s; and Ray Kroc and his McDonald’s franchises in the late twentieth century and early twenty-first; and more. It also delves into such modern success stories as Amazon.com, eBay, and Google.
- Provides deep analysis of some of the most successful companies of the 20th century
- Contains topical chapters covering titans of the 2000s
- Part of Wiley-Blackwell’s highly praised American History Series
American Business Since 1920: How It Worked is designed for use in both basic and advanced courses in American history, at the undergraduate and graduate levels.
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Table of Contents
Cover
Title Page
INTRODUCTION
Past and Present
The Story Told Here
Trends
A Matter of Size
The Key Internal Problem
Broader Contexts
American Business and the World
The American Business Achievement
CHAPTER ONE: Modern Management in the 1920s: GM Defeats Ford
Cars, Trucks, and Freedom
Henry Ford, Mass Production, and Centralized Management
Alfred P. Sloan, Jr. and Decentralized Management
General Motors Versus the Ford Motor Company: The Triumph of Decentralized Management
Lessons Learned
CHAPTER TWO: Overview: Business Welfare Capitalism, the Financial System, and the Great Depression
Responding to the Dark Side – Business Welfare Capitalism in the 1920s
Functions of Finance
Historical Context of American Finance to 1920
Wall Street and the Stock Market in the 1920s
The Great Depression
Successful Firms During the Great Depression
CHAPTER THREE: Brand Management at Procter & Gamble
Procter & Gamble: Multiple Products and Marketing
Firm Culture
Building the Market
Neil McElroy and Brands
Doc Smelser and the Market Research Department
Lessons of Brands
Changes at P&G in the Early Twenty‐first Century
People as Brands
CHAPTER FOUR: The New Deal and World War II: Regulation and Mobilization, 1933–1945
Franklin Roosevelt and the New Deal
The Extension and Decentralization of Regulation
The World at War
The Marvel of American War Production
The Problem of Mobilization
The Solution: Decentralization through the Controlled Materials Plan
World War II as a Transformative Event
Aviation Matures: Boeing
Postscript: Scandals
Photo Group 1
CHAPTER FIVE: Overview: Postwar Prosperity and Social Revolution, 1945–1970s
The Cold War and Business
Economic Trends
The Place of Business in Society
Boomers, Social Movements, and the Government
Environmentalism
CHAPTER SIX: Overview: The Empowerment of Women and Minorities in Business
Women
Women in the Workforce
Women in Top Management
African Americans
African Americans in Top Management
Hispanics
Hispanics in Top Management
Foreign‐born CEOs of American Firms
Photo Group 2
CHAPTER SEVEN: Science and R&D: From TV to Biotechnology
R&D During the Cold War
David Sarnoff and RCA
Sarnoff and Television
Lessons from RCA’s Mismanagement
The Perils of High‐Tech Markets
Chemicals, Pharmaceuticals, and Biotechnology
CHAPTER EIGHT: Franchising and McDonald’s
The Economic and Social Context of Franchising
The McDonald Brothers
Ray Kroc
Financial Wizardry at McDonald’s
How McDonald’s Worked
Internationalization
Marketing, Labor, Nutrition, and the Environment: The Positives and Negatives of Franchising
Past and Future
CHAPTER NINE: The IT Revolution and Silicon Valley: Relentless Change
Early Days
IBM
Silicon Valley and a New Business Culture
The Internet and the World Wide Web
Companies and Personalities: Amazon, eBay, and Google
Expansion of the Internet: Cloud Computing, the Sharing Economy, and the Internet of Things
CHAPTER TEN: Overview: Financialization of Capitalism, 1980s to 2000s
“Deindustrialization”
Neoliberalism and the Extension of the Economists’ Hour
Surge in Globalization
Negatives of Neoliberalism and Globalization
Financialization
Excessive Pay for Executives and Fund Managers
The Problem of Opacity
CHAPTER ELEVEN: Business and the Great Recession
The Mortgage Mess
The Government Tries to Catch Up to a Financial Industry Under Duress
Reforms
Failures of Government Catch‐up
Photo Group 3
EPILOGUE
The Relentlessness of Change
A Growing Empowerment of Consumers and Entrepreneurs
Centralization and Decentralization
Progress Toward Controlling the Dark Side of Business, So That the System Did Not Destroy Itself from Within
BIBLIOGRAPHICAL ESSAY
Overview of the Field
Statistical References
Syntheses and Bibliographies
Standard Works
Selected Sources for Chapter One: Modern Management in the 1920s: GM Defeats Ford
Selected Sources for Chapter Two: Overview: Business Welfare Capitalism, the Financial System, and the Great Depression
Selected Sources for Chapter Three: Brand Management at Procter & Gamble
Selected Sources for Chapter Four: The New Deal and World War II, 1933–1945: Regulation and War Mobilization
Selected Sources for Chapter Five: Overview: Postwar Prosperity and Social Revolution, 1945–1970s
Selected Sources for Chapter Six: Overview: The Empowerment of Women and Minorities in Business
Selected Sources for Chapter Seven: Science and R&D: From TV to Biotechnology
Selected Sources for Chapter Eight: Franchising and McDonald’s
Selected Sources for Chapter Nine: The IT Revolution and Silicon Valley: Relentless Changes
Selected Sources for Chapter Ten: Overview: Financialization of Capitalism, 1980s to 2000s
Selected Sources for Chapter Eleven: Business and the Great Recession
Selected Sources for the Epilogue
Acknowledgments
Index
End User License Agreement
List of Illustrations
Chapter 01
Figure 1.1 Henry Ford and Edsel Ford with the 15 Millionth Ford Model T and 1896 Quadricycle, May 26, 1927. After Edsel and Henry Ford drove the 15 millionth Model T out of the Highland Park Plant, they posed with it alongside Henry’s first car, the Quadricycle. The Quadricycle had started it all and the Model T had changed the world, but by 1927, both had become obsolete. Ford Motor Company shifted its focus toward production of the new Model A. Competitive pressure from General Motors forced Ford to change.
Figure 2.2 The Brilliant Alfred P. Sloan, Jr., of General Motors, still thin as a rail at age 52. This picture was taken in 1927, the year in which competitive pressure from General Motors finally forced Henry Ford to shut down his giant factories and retool for his new Model A. Sloan’s decentralized and multidivisional management structure spread throughout American business and around the world after World War II.
Figure 3.3 Neil H. McElroy’s famous memo of 1931 inaugurated Procter & Gamble’s strategy of “brand management,” a technique later adopted by scores of consumer‐products companies throughout the world. McElroy served as Secretary of Defense for just over two years, from 1957–1959.
Figure 4.4 P&G laboratory in Cincinnati, Ohio, US, May 13, 2010. Procter & Gamble Co., the world’s largest consumer products company, used technologies normally used in space and medical research to overhaul its Pantene hair care brand, which has some $3 billion a year in sales. P&G reduced the number of shampoos, conditioners and styling aids by about one‐third to 116 products, focusing on four specific hair types to make selections easier for shoppers.
Figure 5.5 The investment banker and War Production Board vice‐chairman Ferdinand Eberstadt, whose ingenious Controlled Materials Plan thrust industrial mobilization forward during World War II.
Figure 6.6 B‐17 Flying Fortress Cabin Top Assembly. 1940s. Notice the women working alongside the men. The company founded by William Boeing in 1916 was the biggest winner in America’s postwar aircraft sweepstakes.
Chapter 02
Figure 2.1 President and CEO of Yahoo! Marissa Mayer attends
Fortune Magazine’s
2015 Most Powerful Women Evening at Time Warner Center on May 18, 2015 in New York City. Before Yahoo!, Mayer worked at McKinsey & Co. and Google.
Figure 2.2 Hewlett Packard CEO Carly Fiorina delivers a keynote address at the 2003 Oracle World Conference September 11, 2003 in San Francisco, California. Fiorina later entered politics, running for senator from California in 2010 and the Republican nomination for president in 2016. She has been active in philanthropic work focused on a variety of causes, including empowerment of women.
Figure 2.3 Ebay Executive Team, Summer 2003– (L–R): standing, Ebay president and CEO Meg Whitman, senior VP Bill Cobb, COO Maynard Webb, and senior VP Mike Jacobson. Seated are senior VP Matt Bannick, senior VP Jeff Jordan, and CFO Rajiv Dutta. Whitman had much success at eBay at first, but then faced a lot of criticism. That criticism followed her to her next CEO position, at Hewlett‐Packard.
Figure 2.4 Facebook COO Sheryl Sandberg attends a talk to promote her book
Lean In: Women, Work, and the Will To Lead
at Barnes & Noble Union Square on March 12, 2013 in New York City. Hired from Google in 2008 to help out Facebook, Sandberg has emerged as one of the most influential female executives in the world. As of the middle of 2016, she had shown no interest in public office.
Figure 2.5 (L–R) Activist/author Gloria Steinem, president of Stony Brook University Samuel Stanley, and author/COF, Facebook, Sheryl Sandberg arrive for day 1 of the International Conference on Masculinities: Engaging Men and Boys for Gender Equality at Roosevelt Hotel on March 5, 2015 in New York City. Activists and business leaders are beginning to realize that achieving gender equality involves not only consciousness‐raising among women, but also among men.
Figure 2.6 Oprah Winfrey speaking at the Rock and Roll Hall of Fame Induction of Quincy Jones, April 19, 2013. Notwithstanding Jones’ contributions over numerous decades to the music industry as composer and producer, among many jobs, Winfrey remains one of the most important African Americans, having been a TV talk show host, actor, producer, entrepreneur, and philanthropist.
Figure 2.7 John H. Johnson, successful head of Johnson Publications Inc., a multi‐million dollar corporation. From a $25‐a‐week office boy for the Supreme Insurance Company at the age of 19, he became board chairman and largest stockholder, as well as publisher of the black‐oriented magazines (Chicago, IL, March 3, 1974).
Figure 2.8 Rosalind “Roz” Brewer, president and CEO of Sam’s Club, speaks during the Walmart Stores Inc. annual shareholders meeting in Fayetteville, Arkansas, US, on Friday, June 7, 2013.
Figure 2.9 Roberto Goizueta, president of Coca‐Cola, in Dunkerque, France, during an inauguration, tasting a can of Coca‐Cola on May 19, 1990. Goizueta took over Coca‐Cola in 1981 and refocused it on soft drinks, making it the world’s number one non‐alcoholic beverage company.
Chapter 03
Figure 3.1 David Sarnoff of RCA and Guglielmo Marconi, inventor of wireless radiotelegraphy, at the RCA transmitting center on Long Island, New York, 1933.
Figure 3.2 David Sarnoff, president of RCA and head of NBC, dedicates the RCA pavilion, an event promoted by the first coverage of television news (broadcast, not coincidentally, by NBC). April 20, 1939. Sarnoff’s failure after World War II to adapt RCA’s management structure to competitive pressures led to the downfall of the company.
Figure 3.3 Raymond A. Kroc hired the right people to help him actualize his vision of fast food restaurants throughout the nation, and later, the world. McDonald’s has become one of the most infamous success stories in American business history.
Figure 3.4 Ronald McDonald at an elementary school, 1960. Original caption reads: “Ronald Mcdonald Gives A Safety Lesson At Grove Park Elementary School To Mrs Christine Leakes Second Grade Class.” Many American businesses in the middle twentieth century engaged a “duty to society” by supporting civic and artistic organizations.
Figure 3.5 Apple president John Sculley, flanked by co‐founders of Apple, Steve Jobs (left) and Steve Wozniak with Apple IIc, 1984.
Figure 3.6 Steve Jobs and Bill Gates,
Fortune
, July 21, 1991. Founders of Apple and Microsoft, respectively, Jobs and Gates defined much of what became the IT revolution in the late twentieth and early twenty‐first centuries. While Jobs’ work in philanthropy was spotty at best, Gates has been a leader, encouraging other billionaires to donate most of their wealth to philanthropy. The Bill and Melinda Gates Foundation is the largest personal foundation in the world. Their work around the world has drawn praise and criticism.
Figure 3.7 (L–R) Eric Schmidt, CEO of Google Inc., Larry Page, co‐founder of Google Inc., and Sergey Brin, co‐founder of Google Inc., chat with the media during the 26th annual Allen & Co. Media and Technology Conference in Sun Valley, Idaho, US, on Thursday, July 10, 2008. The casual dress and informality of this press conference mark a clear difference from the earlier IBM “uniform” of white shirt and black tie. According to Schmidt, Google was “in the business of making all the world’s information accessible and useful.”
Figure 3.8 Online retail giant Amazon.com CEO Jeff Bezos unveils the Kindle DX, a large‐screen version of its popular Kindle electronic reader designed for newspapers, magazines, and textbooks, during a press conference in New York, May 6, 2009. The firm entered the Fortune 500 top ten most valuable firms in 2016.
Figure 3.9 Former WorldCom Inc. CEO Bernard Ebbers and his wife Kristie leave Manhattan Federal Court after Ebbers was found guilty by a jury of fraud charges in an $11 billion accounting scandal on March 15, 2005, in New York. Ebbers, 63, was also found guilty of conspiracy and filing false documents with regulators. He is serving a 25‐year sentence.
Figure 3.10 Former Enron CEO Jeff Skilling (C) leaves the Bob Casey US Courthouse with his attorney Daniel Petrocelli after the end of his fraud and conspiracy trial, May 25, 2006, in Houston. After 16 weeks of testimony and six days of deliberation, the jury found Skilling guilty on 19 counts. Appeals resulted in the dismissal of some charges, but Skilling was sent to prison, originally until 2028. Subsequent negotiations made him eligible for release in 2017. He also had to forfeit $42 million as part of restitution to those harmed by his actions while managing Enron.
Figure 3.11 Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC), speaks during a meeting of the Financial Stability Oversight Council meeting with Timothy Geithner, US Treasury secretary, center, and Ben S. Bernanke, chairman of the US Federal Reserve, listening in Washington, DC, March 17, 2011. A council of US regulators in charge of preventing another financial crisis proposed rules to help the panel decide which clearinghouses are systemically important and require additional oversight.
Figure 3.12 From left: Timothy Geithner, president of Warburg Pincus LLC and former US Treasury secretary, Sheryl Sandberg, COO of Facebook Inc., Henry “Hank” Paulson, chairman and founder of the Paulson Institute, former US Treasury secretary, long‐time employee at Goldman Sachs, and Robert Rubin, co‐chairman at the Council of Foreign Relations, former US Treasury secretary, and 26‐year veteran at Goldman Sachs, participate in a panel discussion during the annual Milken Institute Global Conference in Beverly Hills, California, US, April 27, 2015. The conference brings together hundreds of CEOs, senior government officials, and leading figures in the global capital markets for discussions on social, political, and economic challenges.This photo reflects the on‐going interaction (some label it “the revolving door”) between the private and public sectors in American history.
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The American History Series
Abbott, Carl Urban America in the Modern Age: 1920 to the Present, 2nd ed.
Aldridge, Daniel W. Becoming American: The African American Quest for Civil Rights, 1861–1976
Barkan, Elliott Robert And Still They Come: Immigrants and American Society, 1920s to the 1990s
Bartlett, Irving H. The American Mind in The Mid‐Nineteenth Century, 2nd ed.
Beisner, Robert L. From the Old Diplomacy to the New, 1865–1900, 2nd ed.
Blaszczyk, Regina Lee American Consumer Society, 1865–2005: From Hearth to HDTV
Borden, Morton Parties and Politics in the Early Republic, 1789–1815
Carpenter, Roger M. “Times Are Altered with Us”: American Indians from First Contact to the New Republic
Carter, Paul A. The Twenties in America, 2nd ed.
Cherny, Robert W. American Politics in The Gilded Age, 1868–1900
Conkin, Paul K. The New Deal, 3rd ed.
Doenecke, Justus D., and John E. Wilz From Isolation to War, 1931–1941, 4th ed.
Ferling, John Struggle for a Continent: The Wars of Early America
Ginzberg, Lori D. Women in Antebellum Reform
Griffin, C. S. The Ferment of Reform, 1830–1860
Hess, Gary R. The United States at War, 1941–45, 3rd ed.
Iverson, Peter, and Wade Davies “We Are Still Here”: American Indians since 1890, 2nd ed.
James, D. Clayton, and Anne Sharp Wells America and the Great War, 1914–1920
Kraut, Alan M. The Huddled Masses: The Immigrant in American Society, 1880– 1921, 2nd ed.
Levering, Ralph B. The Cold War: A Post– Cold War History, 3rd ed.
Link, Arthur S. and Richard L. McCormick Progressivism
Martin, James Kirby, and Mark Edward Lender “A Respectable Army”: The Military Origins of the Republic, 1763–1789, 3rd ed.
McCraw, Thomas K. and Childs, William R. American Business Since 1920: How It Worked, 2nd ed.
McMillen, Sally G. Southern Women: Black and White in the Old South, 2nd ed.
Neu, Charles E. America’s Lost War: Vietnam, 1945–1975
Newmyer, R. Kent The Supreme Court under Marshall and Taney, 2nd ed.
Niven, John The Coming of the Civil War, 1837–1861
O’Neill, William L. The New Left: A History
Pastorello, Karen The Progressives: Activism and Reform in American Society, 1893–1917
Perman, Michael Emancipation and Reconstruction, 2nd ed.
Porter, Glenn The Rise of Big Business, 1860–1920, 3rd ed.
Reichard, Gary W. Politics as Usual: The Age of Truman and Eisenhower, 2nd ed.
Reichard, Gary W. American Politics since 1968: Deadlock and Disillusionment
Remini, Robert V. The Jacksonian Era, 2nd ed.
Riess, Steven A. Sport in Industrial America, 1850–1920, 2nd ed.
Simpson, Brooks D. America’s Civil War
Southern, David W. The Progressive Era and Race: Reaction and Reform, 1900–1917
Storch, Randi Working Hard for the American Dream: Workers and Their Unions, World War I to the Present
Turner, Elizabeth Hayes Women and Gender in the New South, 1865–1945
Ubbelohde, Carl The American Colonies and the British Empire, 1607–1763, 2nd ed.
Weeks, Philip “Farewell, My Nation”: The American Indian and the United States in The Nineteenth Century, 2nd ed.
Wellock, Thomas R. Preserving the Nation: The Conservation and Environmental Movements, 1870–2000
Winkler, Allan M. Home Front U.S.A.: America during World War II, 3rd ed.
Wright, Donald R. African Americans in the Colonial Era: From African Origins through the American Revolution, 3rd ed.
American Business Since 1920: How It Worked
Third Edition
Thomas K. McCrawWilliam R. Childs
This third edition first published 2018© 2018 John Wiley & Sons, Inc.
Edition HistoryHarlan Davidson, Inc. (2000, 2009)
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Library of Congress Cataloging‐in‐Publication data applied for
ISBN: 9781119097297 [Paperback]
Cover images: (Front cover) Xinhua / Alamy Stock Photo;(Back cover) © OnstOn/iStockphoto
Tells the story of how America’s biggest companies began, operated, and prospered post‐World War I
This book takes the vantage point of people working within companies as they responded to constant change created by consumers and technology. It focuses on the entrepreneur, the firm, and the industry, by showing—from the inside—how businesses operated after 1920, while offering a good deal of Modern American social and cultural history. The case studies and contextual chapters provide an in‐depth understanding of the evolution of American management over nearly 100 years.
American Business Since 1920: How It Worked presents historical struggles with decision making and the trend towards relative decentralization through stories of extraordinarily capable entrepreneurs and the organizations they led. It covers: Henry Ford and his competitor Alfred Sloan at General Motors during the 1920s; Neil McElroy at Procter & Gamble in the 1930s; Ferdinand Eberstadt at the government’s Controlled Materials Plan during World War II; David Sarnoff at RCA in the 1950s and 1960s; and Ray Kroc and his McDonald’s franchises in the late twentieth century and early twenty‐first; and more. It also delves into such modern success stories as Amazon.com, eBay, and Google.
Provides deep analysis of some of the most successful companies of the 20th century
Contains topical chapters covering titans of the 2000s
Part of Wiley‐Blackwell’s highly praised American History Series
American Business Since 1920: How It Worked is designed for use in both basic and advanced courses in American history, at the undergraduate and graduate levels.
Thomas K. McCraw (d. 2012) was former Professor and Isidor Straus Professor of Business History for the Harvard Business School, where he was instrumental in making Business History an important aspect of the MBA program. McCraw received a Pulitzer Prize in History in 1985 for his book, Prophets of Regulation (1984). He also served as editor of the Business History Review, as associate editor of The Encyclopedia of the United States in the Twentieth Century, and as president and trustee of the Business History Conference. He was a member of the Board of Syndics of Harvard University Press, the Council of the Massachusetts Historical Society, the advisory board of Nomura School of Advanced Management (Tokyo), and the editorial boards of Reviews in American History and Harvard Business Review.
William R. Childs was former History Professor at Ohio State University. He retired from teaching in 2014. Tom McCraw was his advisor at The University of Texas at Austin in the 1970s. After McCraw left for the Harvard Business School in 1978, he remained on Childs’ dissertation committee and hired him as a research assistant for his book Prophets of Regulation (1984). In addition to his two books and numerous articles and book reviews, Childs was editor of Essays in Economic and Business History (1995–1998) and has served on the Board of Editors for the Business History Review and Enterprise & Society.
INTRODUCTION
Past and Present
In 1920, most Americans lived very differently from the way they do now. In that year half of all Americans lived on farms or in very small towns. Many communities remained unconnected to the rest of the country by railways, highways, or telephones. Except for immigrants, most Americans did not travel more than 150 miles from where they were born.
Only one‐third of the nation’s homes had electricity in 1920. Cooking, cleaning, and laundry tasks consumed 70 hours a week. Today, after one of the greatest social changes in human history, that total has plunged to 15 hours because of the availability of such appliances as electric refrigerators, microwave ovens, washers and dryers, vacuum cleaners, dishwashers, garbage disposals, and fast food and take‐out restaurants.
In 1920 no Americans had a TV, computer, or cell phone, let alone an iPad or smart watch. They did not email, text‐message, or purchase retail goods and invest in the stock market online or with their cell phones. They did not take the family to eat at McDonald’s or any other restaurant chain. They did not fly in airplanes, draw cash from ATMs, or use credit cards. There were no malls or supermarkets (the shopping cart was not invented until 1937). Most Americans did not graduate from high school, given the pressure to find a paying job in their mid‐teens; today 85 percent graduate from high school. Only 1 person in 30 graduated from college in 1920; today 1 in 4 do so.
In 1920 care of children, the elderly, and the ill took place in the home; doctors often made “house‐calls.” Deaths from pneumonia, tuberculosis, cholera, diphtheria, measles, influenza, and typhoid fever ran at more than ten times the current rates. Premodern sanitary conditions held forth in many areas. Only 1 in 5 households had an indoor flush toilet. Controlling the size of families was difficult, as reliable birth control methods (other than abstinence) were unavailable or illegal. Most of these conditions true for America in the 1920s still exist for a majority of the world’s population.
Nearly four decades would pass before most Americans and some consumers in other nations enjoyed modern products such as refrigerators. In the invention, development, manufacturing, and marketing of such products, American firms led the way. By 1960, the year John F. Kennedy was elected president, 96 percent of American homes had electric refrigerators, but only 41 percent of French and 30 percent of English and Italian homes had them. That Europeans caught up to Americans by the end of the century suggests how ubiquitous the American‐style refrigerator had become.
The Story Told Here
The story of American business since 1920 logically divides into six periods: the 1920s; the Depression of the 1930s; the New Deal and World War II; the postwar era; the 1980s to the 2000s; and the Financial Crisis of 2007–2008 and the Great Recession of 2007–2009. In the chapters to follow, particular individuals, firms, and industries are highlighted in the era in which they made the most impact, even though their beginnings might have come earlier or they may remain important today.
Many of the chapters to follow take the vantage point of entrepreneurs working at firms in American industries, showing from the inside how businesses operated. The “overview” chapters describe and analyze the social, cultural, and political contexts of the evolving American capitalist system within which the entrepreneurs made management decisions. As the story unfolds over the twentieth century and into the twenty‐first, the internationalization of American business and comparisons between American‐style capitalism and other nations’ political economies become more prominent.
Trends
Four potent trends in American business since 1920 underpin the narrative that follows. None proceeded without temporary setbacks, but all kept moving forward:
The relentlessness of change
. All capitalist economies share this characteristic, but it applies with special force to the United States, where it is accurate to speak of relentlessly accelerating relentlessness. After 1920 the tempos of economic change grew faster, and then faster still. No generation in human history before 1920 has experienced more rapid and relentless change than have the generations following.
A growing empowerment of consumers and entrepreneurs
. Here the main driving force was the increase in per‐capita incomes
by a factor of six
from 1920 to 2014. This unprecedented rise in the nation’s affluence was accompanied by a profound shift in the nature of jobs. In 1920, 30 percent of the population worked on farms; today, 1.5 percent do so. In 1920, almost 30 percent of the population labored in goods‐producing industries such as mining, construction, and manufacturing; today the percentage is 12.6. Jobs in service industries such as retail sales, banking, restaurants, medical services, house cleaning, music teachers, etc. comprised nearly 40 percent of all jobs in the 1920s; today 80 percent of Americans work in the service sector. Together these two big changes – sharply rising incomes and radical redeployments in jobs away from agriculture and production toward services – brought tremendous gains in both consumer power and entrepreneurial opportunity. To cite just one example from early in the story: with the advent of motor vehicles, millions of Americans enjoyed a new sense of freedom and vast opportunities to start new automobile‐related businesses such as taxis, buses, and delivery services.
The evolution of electronic media stimulated the growing empowerment of consumers and entrepreneurs as well. This growth began with AM radio in the 1920s, continued with FM radio and black and white television in the 1940s, accelerated with color television in the 1960s, and high definition television (HDTV) and digital cable in the 1990s and early 2000s, and today advances with streaming online content accessible by laptops and cell phones. Meanwhile, a small government project created in the 1980s – the Internet – led to the World Wide Web in the 1990s. Products and services competed for the consumer, and especially with the privatization of the Net in 1995, undreamed of opportunities beckoned the entrepreneur.
This growing empowerment extended to groups previously excluded from complete participation in the capitalist system. In large measure because of national government responses to political pressure in the 1960s and 1970s, women and minorities exerted more influence as consumers and entrepreneurs during the latter decades of this story.
An increasing tension between centralized and decentralized decision making in business, and the general triumph of decentralization
. Constant decision making lies at the heart of business. Every hour of every day, millions of decisions are made within companies. But by whom? On what basis? In whose interest? During and after the 1920s, as many companies grew ever larger, tensions about decision making became increasingly complicated. The best‐run firms began to develop effective ways to push authority downward to the person best informed to make a particular decision, regardless of where in the hierarchy that person might rank. This was a gradual and often painful lesson for managers to learn, as many stories in this book will show. Companies whose leaders failed to learn the lesson not only suffered, but often perished. In the latter twentieth century, the tensions increased as financial considerations began to influence entrepreneurs to change the way they made business decisions. More and more the focus fell on making short‐term profits, rather than developing long‐range strategies that would ensure the emergence of useful new goods and services.
Progress toward controlling the dark side of business, so that the system did not destroy itself from within
. Competition can bring out the best and worst of human actions. The pressure to make profits often tempts managers to use every advantage, and that sometimes results in unethical and illegal behavior toward their competitors, workers, and consumers. New laws and regulations typically emerge after the exposure of serious problems, rarely in anticipation of them. The American economy is a
mixed economy
in which most businesses are privately owned and markets are the dominant form of coordination, but there is some government spending on oversight and regulation in order to promote social aims. There is in American business–government relations a constant tension between promoting business and regulating business. Governments promote entrepreneurship through enforcing contract law and supporting infrastructures (transportation, communications, and banks). In economies and societies embracing constant change, governments must always play catch‐up in their efforts to regulate business. In the years since the 1930s to the 1980s, US regulators did a fairly good job of reining in bad behavior without stifling entrepreneurship. The regulatory regime was not perfect, however, and in the 1970s government restraints began to loosen over a variety of industries. That loosening led to some positive results – more consumer choice and entrepreneurial activity in telecommunications and airlines – but also to the Savings and Loan Crisis of the 1980s and the Financial Crisis of 2007–2008.
A Matter of Size
Almost every business begins as a small firm (in today’s parlance, a “start‐up”). Those that become big do so because their managers develop winning formulas that meet the demands of the market. With one exception, all of the firms analyzed in this book are now big businesses (the Radio Corporation of America (RCA) no longer exists).
Their large size is also a function of the kinds of industries in which they operate. Firms that managed to survive long competitive struggles in automobiles, airplanes, consumer electronics, oil, chemicals, and other industries that require huge capital investments, almost always grew big – in the United States and elsewhere. But in the majority of industries, including printing, furniture, jewelry, pubs and restaurants, house painting, plumbing, carpentry, and repair services of all kinds, even successful companies rarely grow into big businesses. Only a few thousand of the millions of enterprises now operating in the United States are truly large. In no country in the world does a majority of the labor force work in a big business having more than 1,000 employees.
Businesses of different sizes deal with one another constantly. Big businesses buy from and sell to networks of small‐ and medium‐sized suppliers and subcontractors. The big firms generally have the preponderance of power in these relationships. But even tire manufacturers have very little bargaining power to set prices of new tires to the automobile manufacturers; almost all of their profits come from selling replacement tires direct to the consumer. And megastores like Walmart, large franchising systems like McDonald’s, and e‐commerce stores like Amazon exert tremendous power over their suppliers of any size.
Earlier political debates over whether business should be allowed to become and remain large often took place without the understanding we have now about how these business relationships developed. Small businesses have been prosecuted under antitrust laws to prevent them from banding together to compete with big firms, and in other cases to maintain more competitors while sacrificing economic efficiencies.
There is no question that sometimes businesses can grow too big; or that executives can be paid too much; or that lobbyists actually write legislation advantageous to their large corporate clients and not necessarily for consumers or the public. Starting with the railroads in the mid‐nineteenth century, these sorts of outcomes have happened many times in American history. The key issue is how long the electorate will tolerate abuses without pressing government to correct them.
The Key Internal Problem
The most difficult problem for management of a firm of any size is where to lodge the power to make different kinds of decisions. How do managers balance the necessity for centralized control and the equally strong need for employees to have enough autonomy to make maximum contributions and derive satisfaction from their work?
This balance between centralized and decentralized decision making applies to any organization of people. In the family, for example, these questions arise: Must the family eat together every night? Should the parent or the child set the appropriate bedtime hour? Should the adults or the students choose what kinds of clothing may be worn to school? No single rule will guarantee the best result every time, or in all families. Similarly, in the American military, which appears from the outside to be rigidly centralized (there are 23 different ranks), there has been a concerted effort to encourage officers throughout the command structure to respond to specific events around them within the larger context of the battle plan.
In business, good managers continuously evaluate and adjust the balance between centralized and decentralized decision making. The better a company is organized, the more naturally decisions gravitate to the spot where the best information on the particular issue is available.
This book illustrates the historical struggle over business decision making through the stories of individual firms. The failures of Henry Ford at Ford Motor Company and David Sarnoff at RCA to find the balance between centralized and decentralized decision making contrast with the successful stories of Alfred Sloan at General Motors, Neil McElroy at Procter & Gamble, Ferdinand Eberstadt and the Controlled Materials Plan during World War II, and Ray Kroc at McDonald’s. In the latter years under study, a radical decentralized approach burst onto the scene with the emergence of information technology and e‐commerce, where Jeff Bezos at Amazon, Meg Whitman at eBay, and Sergey Brin and Larry Page at Google led the way.
Broader Contexts
In addition to the four major trends outlined above, two broad contexts, overlapping in part, surround the narrative in this book: the notion of three industrial revolutions and the evolution from managerial capitalism to financial capitalism.
The story that follows began during the middle of the Second Industrial Revolution and ends in the midst of the third one; aspects of the first two informed the third. The definitions that follow apply to Western Europe and the United States; other areas of the world encountered the changes at later dates.
In the period of the First Industrial Revolution, which lasted from about the 1760s to the 1840s, steam engines powered by coal replaced human and animal energy. During this time, people began to regiment their work by the clock, not by the sun as they had done for millennia. Large factories appeared in the textile industry and a few others. Scale economies based on interchangeability of parts and sub‐division of labor enabled the mass production of cloth, clocks and watches, and small arms, all of which became less expensive to consumers. For the most part, market forces shaped competition among businesses. Financing of business was based on credit, and family connections often anchored this era of market capitalism.
Stretching from the 1840s to the mid‐twentieth century, the Second Industrial Revolution rested on technological changes in transportation – railroads, autos and trucks, airplanes – and communication – telegraph, telephone, and radio. Steam power gave way to electric and internal combustion engines, both of which required more coal and petroleum fuels to run the transport systems and machinery in larger factories and assembly plants. Mass marketing arose to distribute the increased mass production of goods. Large‐scale businesses and new forms of business evolved to make the transport, mass production, and distribution systems more efficient, thus reducing prices to consumers even more. During this era of managerial capitalism, financing took place in the stock markets and investment banking houses in Europe and the northeast US. American businesses in the late nineteenth and early twentieth centuries began to invest in mining operations, factories and distribution networks overseas, mainly in Europe and South America but in China as well.
With impetus from businesses needing to manage large amounts of information and military intelligence operations during World War II, the Third Industrial Revolution began at mid‐century and continues today to shape and reshape American business enterprise. It features information technology and knowledge work, and has sped up the divergence between the numbers of service sector jobs and those of agriculture, mining, construction, and manufacturing. Science‐based industries such as electronics, synthetic chemicals and pharmaceuticals, and computer hardware and software, along with an unparalleled expansion of financial services, have led economic growth. All kinds of businesses, of varying sizes, connect more to the global economy than ever before.
In the early decades of the twentieth century, numerous large‐scale businesses dominated the American economy. Firms in such industries as railroads, iron and steel, petroleum, and mining were highly capital intensive; large sums of money were required to operate them. Such sums came first from investors and then from retained earnings. Because these firms were so large (in the 1890s the Pennsylvania Railroad employed more workers than did the federal government), the management of them was separated from the ownership. Hundreds or even thousands of stockholders could not meet at one time to make decisions on how to manage the business. Instead, professional managers – more and more of whom were trained at business schools – made decisions on finance, manufacturing, marketing, and labor relations. And they did so with the long‐term health of the company in mind.
For the most part, these large business firms were managed within centralized, functional management structures that focused on reducing costs through developing scale economies. Some of them were vertically integrated firms in which raw materials acquisition, production, and marketing were directed from a central office. The professional managers oversaw large‐scale technologies like railroad and electrical systems, and steel manufacturing plants and large labor forces of factory workers, clerks, and secretaries. Together, managers and their staffs, and eventually factory workers, became part of the growing American middle class.
This form of managerial capitalism – centralized, functional, professional – evolved over the next century as business leaders struggled to respond to incessant changes in the markets. Many times the responses worked, but sometimes they did not.
American Business and the World
In 1920 the United States was already producing more agricultural and industrial goods than any other country, and its people were enjoying the highest per‐capita income. The growth of that income by a factor of six by the 2010s has no precedent in human history. Notwithstanding its faults, the most significant fact about American business since 1920 has been its outstanding economic performance. This generalization applies to all types of businesses – small, medium, or large and low‐tech or high‐tech. The longest interruption of this growth spiral was the Great Depression, but even then, many businesses grew.
The rags‐to‐riches story of the American Dream came true for enough people so that many others were motivated to try. And while most failed to achieve riches, standards of living improved for them and their children. On a per‐capita basis, Americans started more businesses, saw more of them fail, and then started still more new ones than the citizens of any other country.
This cycle of creation, failure, and re‐creation is a truism of capitalism. The Harvard economist Joseph Schumpeter (1883–1950) liked to argue that internal turbulence epitomizes modern business. Capitalism itself, he wrote, is a process of transformation. It “incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Schumpeter’s metaphor for this process – a “perennial gale of creative destruction” – was more emblematic of the US economy than of any other.
Schumpeter and others labeled the agents of creative destruction entrepreneurs, a French word meaning business adventurers. The success of one entrepreneur did not necessarily mean the destruction of another entrepreneur, despite what the German socialist Karl Liebknecht said in 1907: “The basic law of capitalism is you or I, not both you and I.” Contrary to Liebknecht’s ideological assertion, the American capitalist system evolved as a positive sum game. As consumers’ purchasing power increased, more and more entrepreneurs and firms flourished.
The American Business Achievement
In most academic books on American history in the last half‐century, assertions of high achievement have been out of fashion, and for good reason. From about 1800 to the 1960s American history was taught as an uninterrupted march of progress: George Washington never told a lie; slavery would have died out without the need for a bloody civil war; women always had it better here than elsewhere; the US never took unjust military action. All of these teachings were highly inaccurate and questionable, and academics in the last half of the twentieth century rightly believed that perpetuating them ill‐served the interests of students and the nation.
Beginning in the 1960s, the pendulum of interpretation swung the other way. Historians focused on fuller coverage of the ugly aspects of the American experience, including racism, sexism, imperialism, and warped distribution of incomes. In the case of business, critics pointed out correctly that capitalist success of the American sort had an obnoxious side in its unbridled pursuit of money. American capitalism at its worst promoted a vulgar egocentrism that emphasized the materialistic self to the detriment of the spiritual. It elevated individual rights at the expense of familial and community duties. It made some people fabulously wealthy while others remained dirt poor. Its endless advertising assailed the senses and affronted the soul. It despoiled the land, water, and air of North America and contributed to global environmental degradation. Whether or not these negative aspects inevitably accompanied economic progress is not wholly understood, even by experts. The question remains a controversial topic among academics and public intellectuals.
Aspects of the dark side of American capitalism will appear in the story that follows but the main thrust of the book will remind the reader that what may have been lost in the criticism of the last half‐century is the irrefutable fact that American business enterprise has improved the material lives of millions of people.
To begin the story of the American business achievement since 1920, we turn first to the business leaders who made the motor vehicle the key consumer durable of the Second Industrial Revolution.
CHAPTER ONEModern Management in the 1920s: GM Defeats Ford
Cars, Trucks, and Freedom
During the first half of the twentieth century, the motor vehicle industry best symbolized the genius of American business. Even before World War II began, the car came to be regarded as a necessity, just as televisions, computers, and cell phones later became essentials of modern life.
The first cars and trucks were built in Europe in the1880s and 1890s. By 1899, 30 American firms produced 2,500 cars annually. Because the American market was the richest in the world and expanding rapidly, it furnished the necessary mass market for the automobile manufacturing industry to prosper; by the 1920s it was the largest in the nation. Its connections with suppliers of steel, rubber, and glass, plus its reliance on the oil industry for fuel, lubricants, and service stations made the car the most important product of the twentieth century. By the 1970s about one‐sixth of all business firms in the United States participated in some way in the manufacture, distribution, service, or operation of cars and trucks.
Meanwhile, governments at the local, state, and national levels played catch‐up to promote and regulate the industry. They financed the construction of roads and bridges, registered motor vehicles and licensed operators, installed traffic lights and set speed limits, and expanded police and state trooper forces. Later in the century, governments mandated safety and fuel efficiency standards.
During the 1920s, the car became the center of the national consumer economy, and until the successful Japanese challenge of the 1970s it remained a pre‐eminently American‐made product. An astounding 80 percent of all cars in the world were made in America by the mid‐1920s. There was one automobile for every 5.3 people. In contrast, in Britain and France, there was one car for every 44 people.
The word automobile expresses the exhilarating idea of autonomous mobility, and for a great many people everywhere, driving became a means of escape, a way to express personal freedom, and, perhaps, the biggest leap in world history toward a sense of individual freedom.
Trucks, too, were liberating, for both consumers and entrepreneurs. Trucks deliver agricultural products to towns and cities, transport retail goods from assembly plants to department stores, and transfer household goods from one home to another. Entrepreneurs may offer painting or plumbing services or tacos to paying customers right from their trucks, and they always have the option of growing their business by adding more trucks. Today online commerce depends on fleets of trucks of United Parcel Service (UPS), FedEx, and owner‐operated trucking firms.
As in the case of most new industries, a few bold entrepreneurs created the mighty US automobile manufacturing industry. These included Ransom Olds, James Packard, the Dodge brothers, and Walter Chrysler. The two greatest giants were Henry Ford, who became the best known manufacturer of anything anywhere, and Alfred P. Sloan, Jr., who built General Motors into the world’s largest industrial corporation. The competition between Ford and Sloan in the 1920s and 1930s remains one of the epic stories in the history of business, and a near‐perfect example of the superiority of decentralized decision making.
Henry Ford, Mass Production, and Centralized Management
Growing up in Dearborn, MI, Henry Ford (1863–1947) loved to tinker, amusing himself by taking apart watches and putting them back together. At the age of 16 he worked in a Detroit machine shop, and later he became chief engineer at an electric utility. His first two auto making companies failed, but his third one would change the world.
When Ford launched his third company in 1903, other makers were building cars in small numbers of diverse and expensive models. But Ford, now a handsome, self‐confident, fit‐looking man, instructed one of his partners: “The way to make automobiles is to make one automobile like another automobile, to make them all alike, to make them come from the factory just alike – just like one pin is like another pin when it comes from a pin factory ….” His goals were “to build a motor car for the great multitude … constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise … so low in price that no man making a good salary will be unable to own one – and enjoy with his family the blessing of hours of pleasure in God’s great open spaces.” Ford’s Model T, brought out in 1908, revolutionized the industry. From that point he stopped work on all other models, and concentrated his efforts on improving the T and reducing its costs of production.
A major step in Ford’s miracle of production was the refinement of the moving assembly line. By 1914 the time of assembly for a Model T chassis had dropped from 12 ½hours to 1 ½. Ford’s incessant focus on improving the assembly process reduced the selling price of the Model T (originally $850 in 1908) to $290 in 1925 (the equivalent of $3,988 in 2016). That year, Ford Motor Company sold its ten millionth car.
The very standardization that made lower prices possible, however, also led to high turnover rates among the workers. By 1914, to maintain an annual workforce of 15,000, Ford had to hire 50,000. This whopping 300‐percent turnover rate derived from the pressures and boredom of assembly‐line work and almost complete management centralization. Ford’s response was to increase wages to $5.00 a day (twice the prevailing rate) and reduce the length of the workday from nine hours to eight. The combined magic of the assembly line and the five‐dollar day made Henry Ford famous all over the world. Indeed, by the 1920s, planners in the Soviet Union studied his techniques carefully.
Increased pay and reduced working hours did not improve shop‐floor conditions, but the changes partly compensated workers for the monotony of their tasks. In the 1920s Ford went a step further and shortened the work week from six days to five, without a commensurate decrease in pay. Assembly‐line production represented a dramatic contrast with the pre‐industrial identification of the craftsman’s product with his personal pride and sense of self. Paradoxically, the ownership of a car by those who assembled them offered an offsetting sense of autonomy. Ford wanted his employees to be able to buy one of his cars, and many thousands of them did.
But it was Ford’s overbearing centralized management style that undermined his attempts to humanize the factory experiment. Perhaps no one has so clearly and insightfully analyzed this aspect of Ford’s system as did Upton Sinclair in his novel, The Flivver King: A Story of Ford‐America (1937). In it, Sinclair recognizes the good in Henry Ford, as well as why so many followed him, but he also shows clearly that Ford never understood how truly debilitating working in his assembly plants was; never understood why workers rejected his attempts to force them to follow his values (an infamous undercover police force spied on the workers’ private lives); and never understood why those who worked in the plant wanted to join a union.
This myopia also shaped Henry Ford’s business strategies. Ford held to two basic principles: he would produce high‐quality cars and sell them as inexpensively as possible. He liked to assert that every dollar he could chop off the price of a Model T would attract at least a thousand new buyers. Many customers, he said in 1916, “will pay $360 for a car who would not pay $440. We had in round numbers 500,000 buyers of cars on the $440 basis, and I figure that on the $360 basis we can increase the sales to possibly 800,000 cars for the year – less profit on each car, but more cars, more employment of labor, and in the end we get all the total profit we ought to make.”
Although Ford was one of the richest men in the world, remarks such as these appealed to everyday people, who seemed to admire and trust him as the embodiment of the common man, somebody much like themselves. The Ford Motor Company courted journalists, and Henry was always good copy. Thus, it is not surprising that it was often said that Ford’s fortune of more than a billion dollars had been earned “cleanly,” unlike the wealth of “robber barons” such as John D. Rockefeller and Andrew Carnegie. Ford himself made no secret of his disdain for some of the trappings of capitalism. He spoke harshly of “financeering.” He detested stockholders, whom he described as “parasites.”
In 1919, to rid himself of any stockholder influence, Ford bought up all the outstanding shares of his company and took it private. This was a profound and ominous step. At a single stroke, it put the gigantic Ford Motor Company under the absolute control of one erratic “Genius Ignoramus,” as biographer David Lewis calls Ford. The centralization of management had now become total. A short time later Ford forced his dealers to buy his cars with cash, which caused many of them to borrow money from banks. So much for hatred of “financeering.” And at just that moment, Ford’s company was about to confront a formidable competitor, the emerging General Motors Corporation.
Alfred P. Sloan, Jr. and Decentralized Management
The man who became Henry Ford’s great rival grew up a city boy in New Haven, CT, for the first ten years of his life. Alfred Sloan’s (1875–1966) prosperous merchant father moved the family to Brooklyn in the mid‐1880s, and Sloan achieved a splendid academic record at Brooklyn Polytechnic Institute, where he studied electrical engineering. Working “every possible minute, so that I might be graduated a year ahead,” he finished his degree at the Massachusetts Institute of Technology in three years.
