American Business, 1920-2000: How It Worked

Published by EH.NET (July 1, 2000)

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Thomas K, McCraw, American Business, 1920-2000: How It Worked. Wheeling, Illinois: Harlan Davidson, 2000. 270 pp. $13.95 (paperback), ISBN: 0-88295-985-9.

Reviewed for EH.NET by Larry Schweikart, Department of History, University of Dayton.

Writing any history of American business over a long span of time is difficult, mainly due to problems of organization. While enterprise generally lends itself to topical groupings, this format, of course, does not yield easily to discussions of trends. Thomas McCraw’s American Business takes a somewhat unique approach, melding topical analysis of specific companies as the symbols of an era with the overall economic and commercial developments. Interspersed with his more focused chapters on RCA, McDonalds, Procter & Gamble, and others are general topical treatments of the financial system, pharmaceuticals, women in business, and so on. The approach works reasonably well, and McCraw certainly stuffs each section full of (usually) relevant statistics and interesting company details, all sewn within the fabric of other developments in American history. He summarizes seven themes of the 1920-2000 period, including rising consumer power, intensified competition, the U.S. support system, deregulation, a heavy human toll, growing productivity, expanding leisure time among consumers, and a warm, general embrace of capitalism in America. While one may differ with McCraw in some specifics of each of these, he has nevertheless accurately captured several key characteristics of the U.S. economic and business system in the twentieth century.

Let me be the first to congratulate McCraw on his heresy, though: he has, without mentioning Alfred Chandler, joined me (in my textbook Entrepreneurial Adventure) in pointing out that the trends in modern business are bringing about the death of the “visible hand” (or, at least, are amputating it at the wrist). McCraw points out that the surge in information systems has brought about decentralization of the American management structure in unprecedented ways. Hallelujah! At times, I wondered if I was destined to be the lone voice crying this in the wilderness.

McCraw adds little new to the case studies of the companies, nor is that his point. Rather, he applies fresh analysis to how each fits into its competitive era. For example, he sees the “cooperative model” of Alfred P. Sloan with General Motors as a more effective management strategy than Henry Ford’s “independence” approach; he notes that the financial markets of the 1920s operated in gray areas of the law because they were breaking new ground, not because they were inherently lawless; and he wrestles with the question of how a democratic government in World War II could mobilize effectively without destroying the economic system needed to win the war. (He answers the last question, insightfully, by noting that the organizational structure of Ferdinand Eberstadt’s “Controlled Materials Plan” allowed the armed forces to prioritize their needs, then allowed the private sector to prioritize is production to fill those needs.)

McCraw, who teaches at Harvard, reveals a pro-enterprise bent that is a refreshing break from the Harvard Business School stream of historians who endlessly harp on managerial hierarchies. But every once in a while, he seems to take on the persona of one of those morphing alien creatures, changing in mid-stream into John Kenneth Galbraith. The worst examples come in his discussions of the 1980s and 1990s, where we are treated to a standard liberal/Democratic interpretation of the growing wealth gap and the tax cuts that caused the number of rich people in America to increase (as if that were bad). The wealth of Bill Gates is compared to the 60 million poorest American households . . . whoops! Too late! Microsoft’s price crash of 1999-2000 just chopped that number in half! This, of course, is the point: the wealth gap was made on investment, innovation, and most of all, the potential of technology for earning. If anything happens to that potential at any time, the “wealth gap” shrinks faster than Rick Moranis’s kids.

For an analyst who is otherwise well-reasoned and even brilliant at times, suddenly McGraw seems like George McClellan, bewildered by armies of Confederates marching through an open clearing, convinced he was seeing different troops, when in fact he was looking at the same old faces. The so-called “wealth gap” is the same gap that developed in the late 1800s as new technologies, with their vast earnings potential, made millionaires out of Carnegie, Rockefeller, and others. Lost in the focus on what they made versus what someone else made is the fact that in the case of Carnegie, Rockefeller, Gates, and Steve Jobs, their products improved daily lives in quantum proportions. More importantly, discussions of “wealth gaps” become meaningless when viewed in another context, namely, “Have you served your fellow man?”-which is the ultimate question of capitalism. In Gates’s case, he serves his fellow man millions of times a day-perhaps billions. If a tiny cost were affixed to each time someone turns on a Windows operating system, and multiplied to the number of users, Bill Gates is probably getting robbed!

McCraw also falters in his (again Galbraithian) analysis of Americans’ savings rates, which he bemoans as low. But the savings rate is low only because those things people save for are handled with other financial arrangements. For better or worse, currently a large chunk of retirement is “withheld” by Social Security; and VA/FHA mortgages (along with the interest deduction from income taxes for home payments) subsidize home ownership through lending rather than saving. A recent study in the Milken Institute Review concluded that Americans’ real savings rates are far higher when these “forced” savings are taken into account, and probably are on a par with anyone in the world, except for the Japanese, whose living conditions leave them fewer options. Likewise, McCraw laments the “money gap” in business CEO salaries, but offers no real analysis of why boards would pay such huge salaries. In contrast, one major trend that McCraw ignores is that of the overwhelming burden placed on American companies by the tort lawyers. Not only does the legal system extort tribute from companies on a routine basis, but it has changed the internal structure of the corporation so as to give the legal divisions far more power and prestige than the research and development divisions. Nor does McCraw delve into the recent trend of federal and state government lawsuits against “legal” products-a pure sham designed to keep funding in the public trough at a time that taxpayers have all but revolted over any further tax increases, and one which threatens the existence of the free market itself. Certainly this bears some discussion in “how American business worked.”

All in all, McCraw has written a good book, and a provocative book. Its small size makes it a natural for the classroom, if one enjoys the topical approach, and his insights generally seem well grounded.

Larry Schweikart, published The Entrepreneurial Adventure: A History of Business in the United States (Harcourt) earlier this year. He is the author of numerous books on American banking and finance, and the military/defense industry. He also published a history of the National Aerospace Plane for the United States Air Force entitled The National Aerospace Plane and the Quest for the Orbital Jets (USAF History Division, 1999).