EH.NET BOOK REVIEW

Published by EH.NET (January 1998)

John F. Walker and Harold G. Vatter, The Rise of Big Government in the United States. Armonk, NY: M.E. Sharpe, 1997. 256 pp. $64.95 (cloth), ISBN: 0765600668 . $24.95 (paper), ISBN 0765600676.

Reviewed for EH.NET by Werner Troesken, Department of History, University of Pittsburgh,

In The Rise of Big Government in the United States, John F. Walker and Harold G. Vatter argue that government growth is response to the evolution of the market, shifts in ideology, and changes in international relations. Although Walker and Vatter document the growth of local and state governments, they focus mainly on the growth of the federal government. Their story begins in 1890 and extends through the present. Walker and Vatter take issue with two common explanations for the rise big government. First, they claim that economic and political crises have not caused the size of government to ratchet upward, as Robert Higgs argued in Crisis and Leviathan: Critical Episodes in the Growth of American Government (New York, 1987). Second, they claim that government bureaucrats seeking to maximize their own power and wealth have not prompted the rise of big government, as William Niskanen argued in Bureaucracy and Representative Government (Chicago, 1971).

For Walker and Vatter, government growth is primarily a response to the vagaries and failures of the market. In a nutshell, when the market generates outcomes that society does not like, society demands that the government intervene and make things better. The government’s ability to solve the problems wrought by the market depends critically on the larger culture’s ideological make-up. In eras dominated by a laissez-faire ideology, the government grows less, and is less successful in dealing with the problems generated by the market.

Although Walker and Vatter are both economic historians, they chose not to consider much recent work in economic history. Consider two examples. The authors argue that federal deposit insurance has stabilized the banking industry and protected small depositors. In making this argument, Walker and Vatter do not refer to numerous articles by Charles Calomiris, David Wheelock, and Eugene White. The works of Calomiris, Wheelock, White, and others, highlight the moral hazard and adverse selection problems that have plagued deposit insurance schemes throughout history. Walker and Vatter also argue that since World War II, fiscal policy has stabilized the macroeconomy and prevented severe downturns. Their discussion would have been better had they addressed Christina Romer’s work on pre- and post-war business cycles.

Overall, Walker and Vatter tell a plausible story, though I would have preferred a more balanced analysis, one that identified the costs, as well as the benefits, of big government. Readers wanting an introduction to the rise of big government, or those wanting an account that emphasizes the benefits of big government, will probably find this a useful book. Those wanting a more thorough or balanced account should look elsewhere.

Werner Troesken Department of History University of Pittsburgh

Werner Troesken is author of Why Regulate Utilities? The New Institutional Economics and the Chicago Gas Industry, 1849-1924 (University of Michigan Press, 1996).

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H-NET BOOK REVIEW

Published by H-Business (January 1998)

Arup Banerji. Merchants and Markets in Revolutionary Russia, 1917-30. New York: St. Martin’s Press, Inc., 1997. xxiv + 237 pp. Tables, appendix, notes, bibliography, and index. $69.95 (Cloth), ISBN 0-312-16293-6.

Reviewed for H-Business by Alan Ball, Marquette University

Private Trade in Early Soviet Russia

I agreed eagerly to review Arup Banerji’s study of private entrepreneurs in early Soviet Russia, assuming that it would extend (or challenge) the findings of earlier works. Soviet/Russian archives have been open for a decade, now, and should be able to support a fresh exploration of private business during the New Economic Policy (NEP) of the 1920s. For example, such a book might offer brief biographies of individual private traders or devote itself primarily to private trade in non-Slavic republics. It might provide more extensive coverage of the “Roaring Twenties” atmosphere in principal Soviet cities–especially the nightclubs, bars, casinos, restaurants and so forth frequented by (among other people) newly-wealthy entrepreneurs, as in Russia today. A separate chapter would also be welcome on public opinion(s) regarding these merchants, as would new (and more abundant) material on their fate in the 1930s, when laws banned most of their former activities.

In short, numerous topics and questions remain that would benefit from archival documents inaccessible when I worked on the subject fifteen years ago. Not only would historians welcome sources permitting a deeper exploration of major aspects of Soviet society in the 1920s, the findings of such work might be revealing to those studying private enterprise in post-Soviet Russia. Short of that, a new book on NEP would still be valuable if it offered a thoughtful challenge of important conclusions prevalent in the scholarly community.

Unfortunately, professor Banerji’s book attempts none of these things. It covers ground well known to other specialists and does not modify or reject basic assumptions among contemporary scholars. Most disappointing of all, the volume relies exclusively on familiar sources, with nothing at all from Rossiiskii Gosudarstvennyi Arkhiv Ekonomiki (the Russian State Archive of the Economy) or any other Russian archive. Late in the 1990s, it is difficult to imagine a work of this sort published without Russian archival documentation.

That said, the book itself is a reliable guide to private trade in the early Soviet period to the extent that it competently reviews many of the basic conclusions already published elsewhere. An introductory chapter covers private trade before NEP, including the unsuccessful efforts to ban such commerce during the Civil War. In this period (1918-1920) the state proved unable to take on the task of distributing essential goods itself, and thus private trade continued, furtively, in various itinerant, petty guises–nothing like the more settled and substantial network of merchants that had existed before the Revolution. So essential was private trade during the Civil War that many officials tolerated it, regardless of its illegality.

Next, professor Banerji presents an overview of state policy: the crises that convinced Lenin to legalize private trade in 1921; sterner measures taken against private entrepreneurs in 1923/24; a relaxation of pressure under the New Trade Practice in 1925/26; followed by ever harsher actions in the last years of the decade. Against this background, he then focuses on taxation of private enterprise and the sources of credit available to it (with taxation a much more important concern for most vendors than the availability of credit). As one would expect, the tax burden varied with the state’s general line on private trade, noted above.

Part II begins with a statistical look at private trade: the changing number of participants over the decade; their placement in various categories depending on the size and nature of their operations; the value of their sales; products commonly sold; and so forth. Then come two chapters devoted to private trade of specific products–certain manufactured goods and grain, respectively. In the case of grain, for instance, professor Banerji notes the government’s difficulty in obtaining the volume it desired from the peasants, which led late in the decade to “emergency measures” incompatible with free grain trading and thus with NEP. He adds that he does not share the view, common among Bolsheviks of the day, that private traders were a principal cause of the government’s grain collection difficulties.

The final chapter opens with its thesis, namely that the liquidation of legal private trade occurred prematurely, before the state had devised a distribution system to replace it. Private trade was not a threat to socialist construction, professor Banerji concludes, and should not have been crushed as Stalin and his associates assumed control of the Party at the end of the decade. Yet the crackdown commenced and drove private trade back to the surreptitious or petty forms it had assumed during the Civil War. Meanwhile, in the “socialist sector,” alternatives for consumers included rationing and “trade deserts” (no stores or no goods at all). Not until the rise of Mikhail Gorbachev did the Soviet Union again acquire a leader convinced of the need to legalize private trade to a degree equaling (and eventually surpassing) the opportunities permitted during NEP.

No specialist in the period will find any of this a revelation. The book’s main themes are as familiar as its sources. However, the volume is distinguished by the large serving of tables and other statistics packed into its pages. Authors of other recent works, while aware of the data (mostly from Soviet sources published during NEP), have not chosen to include so much of it in their books and articles. If the statistical emphasis makes Merchants and Markets slow-going for the general reader, it may prove of use to a future researcher scrutinizing the figures for details on a specific point or for a fuller sense of the contents of the original Soviet sources. This, along with professor Banerji’s confirmation of colleagues’ findings, are the book’s principal services to the historical profession.

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EH.NET BOOK REVIEW

Published by EH.NET (December 1997)

Robert E. Weems, Jr., Black Business in the Black Metropolis: The Chicago Metropolitan Assurance Company, 1925-1985. Bloomington, IN: Indiana University Press, 1996. xvii + 158 pp. Includes preface, tables, biographical references, photos, and general index. $35.00 (cloth), ISBN: 0-253-33025-4.

Reviewed for EH.Net by Brian Adkins, Department of History, Rutgers University.

For more than half a century, researchers have chronicled the ascendancy and decline of African-American insurance companies. Most studies focused on the racial, social, and economic climate which necessitated black enterprises of this nature, or examined the internal operations of the firms themselves. Robert L. Weems, Jr’s Black Business in the Black Metropolis: The Chicago Metropolitan Assurance Company, 1925-1985 attempts to combine the conceptual framework of previous black insurance studies while chronicling changes occurring in Chicago’s African-American community during the twentieth century. This volume is part of Indiana University Press’s lauded “Blacks in the Diaspora” series; featuring more than forty titles examining race, gender, class, and broader issues in Atlantic history.

The core research and organizational synthesis for Black Business is gleaned from Weems’s doctoral dissertation written at the University at Wisconsin. The numerous acknowledgments Weems (an Assistant Professor in the Department of History at the University of Missouri-Columbia) gives to mentors, fellow scholars, helpful archivists, and many others is indicative of how he approached his subject. Weems’s inquiry is written from a personal analytical perspective. He conducted more than fifty oral interviews with people affiliated with the Chicago Metropolitan Assurance Company during its long history, and was granted access to the firm’s financial and meeting records. Not surprisingly, because of the wide preponderance of available resources, Weems’s chronicle of Chicago Met’s corporate history is his book’s major strength. However, instead of closely integrating twentieth-century socio-political, economic, and cultural forces within his strong business narrative; Weems’s compartmentalization of these events, and other structural problems prevent him from achieving his larger objectives.

Weaknesses aside, Weems’s first three chapters serve as the benchmark of his work. Chapter One chronicles the embryonic history of the Metropolitan Funeral Home Association (MFSA). Begun in 1925 as the precursor to what eventually became Chicago Met, the firm dedicated its efforts to serving the burial needs of working-class black Chicagoans. Although providing a necessary societal function, MFSA struggled to survive during its early years. Similar to many early African-American business ventures, MFSA was unable to obtain capital from white lending institutions. However, the unusual external activities of the firm’s first two patriarchs provided the financial catalyst for the fledgling enterprise to eventually become profitable.

Daniel Jackson and Robert A. Cole supervised MFSA and Chicago Met’s operations for more than three decades. Besides being a prominent black businessman, Jackson also had close ties to Chicago’s Republican political machine. However, his major source of power stemmed from controlling gambling activities in the city’s racially-segregated African-American community (nicknamed “Bronzeville” by its black residents). Evidence suggests that Jackson underwrote MFSA’s initial capitalization and subsidized its operating losses until Cole, his gambling lieutenant and protege, purchased the firm from him in 1927. While MFSA was only a side activity for Jackson, it became an important part of Cole’s professional identity for the rest of his life. Born in Kentucky, Cole migrated to Chicago in 1905 after finding his prospects limited in the South. Soon after arriving in the city, he obtained employment as a Pullman porter. It was during his fruitful twenty year tenure with Pullman, where Cole mastered the interpersonal skills he deftly used later in his business career.

Under Cole’s vigorous leadership, MFSA professionalized its insurance sales force and reorganized company operations. The firm earned praise from policy holders because it paid claims promptly, and permitted burial within a 1,000 mile radius of Chicago. Since many black Chicagoans were recent southern migrants, the aforementioned option was an attractive sales tool. However, despite gaining the confidence of its working-class customers and African-American city leaders, the operation continued to lose money. Between 1927 and 1931 alone, Cole personally loaned MFSA more than $18,000 to help stem the tide. Nevertheless, even with Cole’s gambling subsidies, the firm survived the Great Depression largely because of its ambitious sales force. Throughout the 1930’s, MFSA salesmen were paid strictly by commission, and the necessity of securing new clients prevented a full-scale erosion of its customer base. Having weathered a difficult storm, by the end of the World War Two, the firm’s financial problems became a distant memory as MFSA gained new customers and significantly increased its revenue.

Chapters Two and Three examine the firm’s most prosperous period. The early postwar era brought renewed hopes for African-American social and economic advancement, and MFSA’s leaders were not immune. Implementing expansion plans conceived shortly after the war, MFSA management decided to enter the life insurance business, expand its sales territory outside of Bronzeville, and provide additional benefits and dividends for their burial customers. The firm also changed its name to the Metropolitan Mutual Assurance Company of Chicago (finally becoming the Chicago Metropolitan Assurance Company in 1952). Not surprisingly, because of the prosperous temper of the times, Chicago Met increased its policy base, weekly premium income, and total admitted assets between 1947 and 1957.

However, Cole’s death in 1956 served as a demarcation point for Chicago Met’s postwar ascendancy and decline. Although he distanced himself from day-to-day management in his later years, the firm’s long-time patriarch still influenced its operational philosophy. The real impact of his death became apparent as Cole’s successors were unable to maintain friendly relations with its vaunted salesforce, culminating in a divisive agents strike during the summer of 1957. The origins of the labor dispute stemmed from an initiative to increase policy sales in downstate Illinois, Indiana, and Missouri. As a financial incentive, company officials paid salespeople in the target markets a higher commission rate than agents servicing Chicago-area customers (more than four-fifths of Chicago Met policies were sold in Bronzeville). Although the labor-management conflict was eventually settled, company morale never returned to its previous level, and exacerbated other looming problems.

Flaws in Weems’s organizational focus become readily apparent in Chapters Four and Five. Moving out of chronological sequence, the scholar examines Chicago Met’s impact as an community institution and the legacy of Cole’s paternalistic management style. While offering some important insights, these chapters often repeat material interspersed throughout his narrative. A prime example is Weems’s discussion of the socio-cultural impact of opening the firm’s new corporate headquarters. Completed in 1940, the complex also boasted a formal ballroom, (an eating facility was added in 1948) and became an important Bronzeville social center. While the genesis and overall impact of the firm’s headquarters is prescient earlier, the author’s continued discussion of it undermines its significance.

Weems’s work is further hampered by an unbalanced historical and chronological focus. Eighty percent of Black Business records the first half of Chicago Met’s history. The final two chapters (examining a period from 1958 to the early 1990’s) span only twenty-four pages, and don’t have the same analytical depth as earlier material. Furthermore, while ably chronicling Chicago Met’s losing battle to remain viable and independent, Weems misses a golden opportunity to tie the firm’s postwar woes to changes in black consumer and socio-economic fortunes.

Noted labor scholar Lizabeth Cohen in Making A New Deal, (New York, 1990), her prize-winning social history of post-World War One Chicago industrial workers, suggests that African-Americans were more likely than any other racial group to embrace brand-identified consumer products and services. Besides failing to refute or defend monolithic theories such as Cohen’s, Weems only provides a cursory examination of Chicago Met’s postwar marketing and advertising strategy in reaction to increased competition from white-owned insurance firms and aggressive black-controlled companies. The management style of the Atlanta Life Insurance Company (the African-American firm which purchased Chicago Met in 1991) represented a marked contrast to initiatives undertaken by the central figures in Weems’s narrative. While Chicago Met foundered during the 1980’s, Atlanta Life merged with, or purchased several struggling (but still valuable) black insurance companies in an effort to keep pace with overall industry consolidation.

The recent closing and liquidation of the once-hallowed Woolworth variety chain, underscores the harsh realities of American consumer society. Throughout its history, Chicago Met’s fortunes mirrored those of the community it valiantly served for more than six decades. While the forces of integration and post-industrialization wreaked havoc on the lives of their loyal working-class customers; Chicago Met ultimately lost its autonomy because unlike firms such as Atlanta Life, the organization could not effectively expand beyond its Bronzeville base. Unfortunately, Weems’s reluctance to delve further into larger structural issues such as this, mars what could have been an important and path-breaking inquiry. Nevertheless, because of Chicago Met’s unusual origins and history, Black Business is still a durable treatise for scholars and researchers of African-American entrepreneurship.

Brian Adkins Department of History Rutgers University

Brian Adkins is a doctoral candidate and Ford Foundation Fellow. He is currently completing his dissertation examining race, gender, and class relations in post-World War Two Chicago.

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EH.NET BOOK REVIEW

Published by EH.NET (December 1997)

W. Elliot Brownlee, Editor. Funding the Modern American State, 1941-1995: The Rise and Fall of the Era of Easy Finance. Cambridge: Woodrow Wilson International Center for Scholars and Cambridge University Press, 1996. ix + 467 pp. $59.95 (cloth), ISBN: 0521552400.

Reviewed for EH.NET by Richard Vedder, Department of Economics, Ohio University.

The good news is that seven scholars from a variety of disciplines (economics, history, political science, law) have given us an engaging narrative on various aspects of the contemporary history of American federal taxation in a volume that should be oft-cited. The bad news is, as is typically the case in edited volumes, the quality of the analysis is uneven and in a few places even historically inaccurate.

The book was probably largely written in 1994 or at the beginning of 1995. I was a little turned off by the very first sentence of text in the book, in a promotional blurb preceding the title page: “The fiscal crisis faced by the American federal government represents the end of a fiscal regime that began with the financing of World War II.” My reaction was: what fiscal crisis? At the time I read the book, President Clinton had just announced that the 1997 fiscal year budget deficit was about $22 billion, the smallest deficit in relation to total output in a generation. Moreover, the tax changes implemented in the 1997 budget deal merely extended the fiscal regime arising out of World War II.

Yet the claim is probably not so wrong after all. Americans are extremely unhappy with the administration of the tax system, and with its complexity. The public mood is ripe for reform, perhaps radical change that involves the replacement or profound modification of the progressive marginal rate income tax. The booming economy has given some temporary respite in dealing with the entitlement problem, but in the long run the existing fiscal equilibrium is clearly untenable given what C. Eugene Steuerle appropriately calls (p. 428) “the yoke of prior commitments.” It looks increasingly likely that major fiscal changes will occur at some time in the next decade.

Two of the essays (totaling more than one hundred pages) are by Elliot Brownlee. One summarizes the volume and the second provides a historical overview of the tax system since the beginning of the Republic. Brownlee correctly notes that new tax regimes implemented during four national emergencies (Civil War, World War I, the Great Depression, and World War II) facilitated the enormous growth of the federal government. High wartime taxes were only modestly lowered after those conflicts, which, combined with reduced defense spending, allowed for expanded social programs without incurring large political costs.

Brownlee emphasizes the tensions between the Republican emphasis on consumption and tariff taxation and the Democratic yearning for progressive income taxation in the late nineteenth century. Indeed, one can argue that the entire fiscal history of the country since 1860 is one of the changing political importance of two impulses: the progressive impulse to use the tax system to bring about income redistribution, and the conservative impulse to reduce the inefficiencies, resource distortions, and growth drag associated with high rates, particularly with regards to income.

A point that gets occasional mention but little emphasis in the book (possibly excepting Steuerle) is that progressive taxation gave political incentives to encourage price inflation, as bracket creep provided a politically clever way to raise taxes in a stealth fashion to finance social programs. I do not think it is entirely an accident that inflation in the United States was low or non-existent in the era before sharply progressive taxation, was high in the era of high progressive rates, and has moderated since tax indexation reduced (although not eliminated) the bracket creep dimensions of the progressive income tax. Did fiscal policy drive monetary policy?

Brownlee makes its abundantly clear that progressives in both the Wilson and Roosevelt administrations used war emergencies as an opportunity to impose their redistributionist ideas. As he hints, a case can be made that the notion of progressive income taxation was saved, by all people, Secretary of the Treasury Andrew Mellon, who in the 1920s defused Republican efforts to replace the progressive income tax with a national sales tax, an effort that has had a renaissance of sorts today.

Brownlee’s account of tax history emphasizes the progressive impulses at redistribution, and pays little attention to the efficiency difficulties that extremely high marginal rates pose. Few economists today would claim that sharply raising marginal tax rates in 1932 was an intelligent move from either a demand or supply side perspective, yet Brownlee does not discuss whether this viewpoint was articulated at the time. Had equity concerns completely silenced the traditional efficiency arguments that arise in tax debates? The emphasis throughout the Brownlee article is on tax changes that provided fiscal support for an increased state: he gives very little attention to the important Kennedy and Reagan tax cuts, and completely ignores several moderately important changes in the tax system, such as in 1954, 1990, and 1993.

Turning from the general to the specific, Carolyn C. Jones competently explores how the government used public relations techniques to convince Americans to comply with high income taxation in the 1940s, when most Americans first became payers of the tax. Edward D. Berkowitz nicely summarizes the history of social security taxation, showing how liberals associated with the administration of the program (such as Wilbur Cohen) played an influential role in crafting Social Security expansion. They convinced legislators that large increases in benefits were possible with only moderate tax increases. In time, of course, political leaders learned this lesson too well, increasing benefits in the 1970s in an actuarially untenable fashion. The modern troubles of Social Security are less extensively explored than the program expansion, although Berkowitz perceptively notes that “Americans have historically tolerated taxes reflecting shared social purpose but that even these taxes can reach a threshold that threatens to undermine the enterprise the tax supports” (p. 183).

In a long and important essay, Herbert Stein updates his Fiscal Revolution in America (Chicago: University of Chicago Press, 1969). The era before the 1960s was dominated by tensions between three alternative budget philosophies (old-fashioned Keynesian “functional finance”, a more conservative or “domesticated” Keynesianism advocated by Stein, and a traditional Republican balanced budget rule). By contrast, Stein correctly tells us that fiscal policy in the post-1964 era was not governed by any specific budget philosophy. The problem was “the unwillingness of policy-makers to subordinate their desires for specific tax and expenditure programs to any aggregate goal” ( p. 200).

Stein then goes into a long discussion of the specifics of fiscal policy, emphasizing the era when he was a player, namely the Nixon Administration. The fact is that, for all the policy angst and debate, federal taxation absorbed about 20 percent of the national output throughout the period. Whenever taxes started to rise above that amount from bracket creep, a tax revolt would ensue, culminating in what Stein (p. 266) terms the “Big Budget Bang” of 1981. Whenever taxes fell much lower than one-fifth of the nation’s output, tax increases ensued (1982, 1990 and 1993 come especially to mind). The increasing contempt for aggregate fiscal rules of any kind reflected growing tensions posed by the growth of entitlement programs and, on occasion, other spending needs. The marginal political benefits to politicians of spending money exceeded the marginal political costs. The “automatic” nature of entitlement spending increases was aggravated by new programs in the 1960s and 1970s. Deficits were a politically less painful way to finance government constrained by a tax threshold imposed by popular sentiment. Like inflation- induced tax increases, deficits are a stealth form of taxation. As Stein concludes, in the early 1960s it was true that “economic science had provided commands that politics would and should obey. That belief has now disappeared.” (p. 286)

Julian E. Zelizer’s account of Wilbur Mill’s role in the fiscal policy changes is well crafted. Mills shrewdly used experts to help him make important changes in the fiscal system, and to stand up to Administration and congressional pressures. At the same time, he was a creature of Congress and knew how to win votes and maintain power. In a less successful essay, Cathie Jo Martin looks at the role that business played in the tax changes of the postwar era. The paper is marred with significant factual errors. Speaking of the Reagan era, we learn (p. 382) that “neoclassical economists concentrated in the CEA under Murray Weidenbaum and then Alan Greenspan.” Alan Greenspan did serve as Chairman of the Council of Economic Advisers – but in the Ford administration several years earlier. I read (p. 394) that administration official Richard Darman was a “supply-side economist.” First of all, Darman was (and is) not an economist (his most recent Who’s Who in America bio refers to him as a “former investment banker” and “former educator” and earlier biographies as “business consultant.”). Secondly, most of the prominent supply siders I know from that era viewed Darman as their enemy, the very antithesis of a “supply side economist.” The essay makes several assertions based on interviews with anonymous committee staffers. As a congressional staffer myself in this era, I would suggest that staff interpretations of major congressional events varied widely, and too many assertions are made that at the very least should be qualified.

The book ends on a more solid scholarly note. Steuerle nicely uses fact and logic to suggest that the era of “easy finance” ended in 1981. Up to that date, economic growth, defense cuts, social security tax increases and the impact of inflation in raising taxes and lowering the real burden of the debt made it possible to expand social programs without dire budgetary consequences. After 1981, “the yoke of prior commitments”, the productivity growth slowdown, tax indexation and other factors brought about “the fiscal straitjacket era.” On the spending side, the growth in entitlements set the stage for a future fiscal crisis that will force some change in the nation’s fiscal (and probably tax) regime.

Taken as a whole, this volume advances our understanding of the historical trends in tax policy in important ways. While not pretending to be a balanced or comprehensive survey of history of modern taxation, it is a nonetheless a welcomed addition to the literature that scholars will utilize for years to come.

Richard Vedder Department of Economics Ohio University

Richard Vedder is Distinguished Professor of Economics at Ohio University, where he does research on labor and fiscal policy issues. His latest book, with Lowell Gallaway, is Out of Work: Unemployment and Government in Twentieth-Century America, updated edition (New York: New York University Press, 1997).

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EH-NET BOOK REVIEW

Published by H-Business@eh.net (December, 1997)

Mansel G. Blackford and K. Austin Kerr. BFGoodrich: Tradition and Transformation, 1870-1995. Columbus: Ohio State University Press, 1996. x + 507 pp. Tables, photographs, appendices, notes, and index. $30.00 (cloth), ISBN 0-8142-0696-4; unreleased (paper), ISBN 0-8142- 0697-2.

Reviewed for H-Business by Kenneth L. Simons, Royal Holloway, University of London

Insights from an American Industrial Experience

Blackford and Kerr’s history of B.F. Goodrich traces the development of the company as it produced a changing range of products from 1870 to 1995. Through this history, the authors provide insights into several universal themes about industrial competition and organization of American manufacturers in the 1900s. Blackford and Kerr make no attempt to generalize conclusions beyond the experiences of Goodrich, but merely provide scholarly descriptions of the company’s history in a way that addresses the universal themes. In American manufacture of automobile tires, B.F. Goodrich became the first producer when in 1896 it filled an order from the Winton Automobile Company of Cleveland. As automobile production expanded, Goodrich was well-placed to stay a leader in this profitable new market by branching out from bicycle tires and other rubber products into automobile tires. The company licensed key tire patents and helped set up the Clincher Tire Association and its system of production quotas. Yet the quotas spurred manufacturers with low allocated sales to develop alternative technologies. Worse, Goodrich management lagged in tire plant investment and improvement. By 1916, competitor company Goodyear surpassed Goodrich with a 21% market share in automobile tires, and Firestone too surpassed Goodrich by the mid-1920s. Although Goodrich hung on among the industry’s “big four”, its relative inattention to manufacturing meant that, from the 1920s on, high costs often plagued profits in the company’s tire operations. After World War II, despite sporadic major investments in tire manufacturing, profits remained elusive. In 1988, Goodrich sold its tire interests.

The company had other products to rely on, some in lucrative growth markets. After tires, a second key product was polyvinyl chloride, PVC. In experiments to improve the bonding between metal and rubber, company scientist Waldo Semon in 1926-1927 stumbled on a means to turn the polymer of vinyl chloride into a flexible, jellylike plastic. Managers did little to commercialize plasticized PVC until the late 1930s. World War II highlighted PVC’s advantages, as the military funded rapid construction of production facilities. A key initial use was the coating of electrical wires and cables. By around the end of the war, Goodrich apparently had a capacity to produce annually over 10 million pounds of PVC. By 1966, Goodrich’s output reached 260 million pounds, and by 1971, 456 million pounds. Other firms also produced PVC, including Union Carbide by 1941, but through 1955 the firms involved reaped high profits through “unspoken agreements to maintain prices” (p. 236). Goodrich did not attempt to bar competitors from the market using patents; in any case alternative patents could easily be gained via minor chemical variations. In 1955, Dow Chemical began selling a key raw material that previously had to be produced as part of the PVC manufacturing process. Entry of new producers yielded twenty manufacturers by 1958, and prices plummeted. The easy flood of PVC profits ceased, although Goodrich managed to maintain less striking profits by pioneering new uses for PVC and by developing the industry’s lowest- cost production facilities. Nonetheless, PVC as a commodity chemical became less attractive as a continuing line of business, and Goodrich sold most of its PVC operations in 1993.

Such juggling of product markets was typical for Goodrich, which began its existence in 1870 as a diversified rubber producer. By 1902 it produced rubber items such as bicycle tires, tubes and hoses, molded goods, druggist sundries, golf balls, and conveyor belts. >From its work on chemical additives (to make rubber longer-lasting and quicker to produce), synthetic rubber, and new means to use rubber, the company developed a range of chemical products that led to the formation in 1942 of a separate chemical division, and its reorganization as a wholly owned subsidiary in 1945. Provision of airplane tires, brakes, and other equipment beginning in 1909 led to a small aeronautics department in 1917, and eventually to an aerospace division. In addition to expanding internally, the company purchased firms in strategically related markets or with strategically key technologies. Especially from the 1970s on, executives used divestitures and acquisitions to reshape the company. In the 1980s and 1990s, Goodrich shed its mature markets, notably rubber products and PVC, in favor of two high-growth areas involving materials science: specialty chemicals and aerospace. The authors trace Goodrich’s growing pains, organizational change and continuity, and managerial strategy as the company mutated through different markets over time.

Other themes that recur at various points throughout the book include price collusion and antitrust investigation, reasons for and consequences of laboratory research, difficulties in capturing the monetary returns to important product improvements and patents, strategies in developing distribution networks, influence of personalities on corporate strategy and change, labor unions and strikes, and the thwarting of takeover attempts. These themes may not be addressed as deeply as many readers would like, and clearer thesis statements about them, and comparisons with typical American industrial experience, might have helped the authors focus their information gathering and presentation. However, the authors perhaps can be forgiven these weaknesses, since desirable information may be difficult or impossible to obtain. Moreover, the Goodrich story often provides thought-provoking insights on these themes. A startling insight of this sort is the role of US firms’ infighting over the new radial tire technology in contributing to those firms’ loss of market share to Michelin and other foreign competitors. When Goodrich realized through European subsidiaries that Michelin’s radial tire was an important advance, Goodrich developed its own version of the radial. However, its major competitors Goodyear and Firestone were not ready to produce radials. Goodyear characterized radials as being problematic and promoted its own “bias/belted” tires to customers, thus slowing development of radial sales in the US; moreover, major automakers would not install radials as original equipment on cars unless at least two large manufacturers could supply them. As a result the US manufacturers held back from investments in radials. Also, Goodrich blocked attempts by Goodyear to purchase firms in Holland and New Zealand that would have given radial technologies to Goodyear; again US tire makers’ move into radials was slowed. Earlier investments in radials could have helped defend against international competition by radial makers that eventually cut deeply into US firms’ sales.

One issue that is little addressed is the relative importance of in- house engineering work versus the purchase of equipment in lowering firms’ manufacturing costs. Blackford and Kerr portray Goodrich’s profitability troubles in automobile tires as resulting, seemingly most importantly, from its laggardliness in improving manufacturing processes. This portrayal seems reasonable given others’ findings on the subject [1]. However, the authors come across as implying that lowering costs was mainly a matter of purchasing new equipment, and they do not analyze the relative proportion of in-house engineering work required for cost reduction. (They do mention a specific case, converting tire building machines for radial tires, in which in-house conversion of equipment seems to have been less appropriate than purchasing new equipment. Nonetheless, this does not demonstrate that in-house engineering work was the less promising approach at other times or for other aspects of the manufacturing process, and it stills leaves open the question of engineering costs required to learn about and install equipment from suppliers.) Hard evidence about the size and activities of production engineering and related workforces is difficult to come by, so the contribution to cost reduction of equipment purchases versus in-house engineering remains an open question in economic and historical research.

The book is organized not by themes of this sort, but by chapters corresponding to historical eras, with subdivisions into a lengthy string of product categories. This layout is more prolonged than many readers will care to bear. Fortunately, the subheadings and index provide a means to investigate product markets and some key themes by reading selected chapters. And to their credit, the authors manage to write most of the subsections in a way that invites interest. In occasional instances, ambiguities make readers uncertain about what to believe (e.g., how specifically might Goodrich’s 1954 acquisition, the Sponge Rubber Company, have begun “to fail in the face of management controls imposed from Akron”, p. 225; in what manner did Goodrich’s 1971 divestitures of various rubber products and of its subsidiary Motor Freight cost “about $10 million”, p. 301). But such ambiguities are rare, a tribute to the care with which the book was written.

The research throughout appears scholarly and unbiased. Blackford and Kerr enjoyed full access to Goodrich’s company archive, record books from executive meetings, and other sources. Of course, they also draw on relevant books, trade journals, archives, and interviews. BFGoodrich funded their research, and the company’s chairman and CEO John Ong commented on drafts at the authors’ request, but Ong stressed to them that “the decision about what to say in the book was [the authors’], and [the authors’] alone” (p. ix). Publication via Ohio State University Press apparently was a mandate of the project.

Blackford and Kerr’s BFGoodrich is likely to interest not only persons concerned with BFGoodrich, and not only business historians, but also academics concerned with industrial organization economics, corporate strategy, and organizational studies, plus management practitioners more broadly. It could provide an interesting catalyst for discussion if used as a course text. More importantly, it is a catalyst for all readers to reflect on important themes of industrial experience.

Note: 1. For a general overview of factors affecting competition in US tire manufacturing, see French [1991]. Excellent early studies of labor productivity improvements in US tire manufacturing, and their correlation with the installation of new equipment, are by Gaffey [1940] and Stern [1933]. Regarding the nature of technological changes taking place in the tire industry’s manufacturing processes, and their relation to firms’ profits and survival, see especially Warner [1966] and Klepper and Simons [1997].

References: French, Michael J. The U.S. Tire Industry. Boston: Twayne Publishers, 1991. Gaffey, John D. The Productivity of Labor in the Rubber Tire Manufacturing Industry. New York: Columbia University Press, 1940. Klepper, Steven, and Kenneth L. Simons. “Technological Extinctions of Industrial Firms: An Enquiry into their Nature and Causes.” Industrial and Corporate Change, vol. 6 no. 2, 1997, pp. 379-460. Stern, Boris. Labor Productivity in the Automobile Tire Industry. Bureau of Labor Statistics Bulletin 585, Washington, D.C., US Government Printing Office, 1933. Warner, Stanley L. Innovation and Research in the Automobile Tire and Tire-Supporting Industries. PhD dissertation, Harvard University, 1966.

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EH-NET BOOK REVIEW Published by H-Business@eh.net (December 1997)

Sinclair Lewis. If I Were Boss: The Early Business Stories of Sinclair Lewis. Edited and with an introduction by Anthony Di Renzo. Carbondale Southern Illinois University Press, 1997. xxxvii + 363 pp. Bibliography $39.95 (cloth), ISBN 0809321386; $19.95 (paper), ISBN 0809321394.

Reviewed for H-Business by Peter Baida , Memorial Sloan-Kettering Cancer Center

Sinclair Lewis Before Babbitt

In the twentieth century, as in the nineteenth, the voices that celebrate business values in the United States have been challenged by voices of doubt and dissent. No one denies that business has shaped American life in vital ways. The questions that interest the critics are questions of value. How does the United States measure up as a culture? What kind of people does it produce? What quality of life does it offer? Has business exercised not merely a shaping but a warping influence?

These questions were addressed with special fervor in the work of a tall, skinny redhead who became, in 1930, the first American to win the Nobel Prize for Literature. Sinclair Lewis was born in Sauk Centre, Minnesota, in 1885, the son of a country doctor. In the twelve years after he graduated from Yale in 1907, Lewis traveled restlessly around the United States; worked briefly in a number of editorial, advertising, and public relations positions; and published four novels, none of them now remembered. Then, in 1920, he published Main Street, followed in 1922 by Babbitt. These books remain essential reading for anyone who wants to understand the cultural history of the United States in the twentieth century.

To mark the seventy-fifth anniversary of the publication of Babbitt, the Southern Illinois University Press has rescued fifteen of the over sixty short stories that Lewis published in American popular magazines between October 1915 and May 1921. No one would claim that these stories add to the world’s supply of great literature, yet Lewis’s early work contains much that will interest the literary or cultural historian. In these stories, as Lewis’s biographer Mark Schorer observes, Lewis “investigates the world of George F. Babbitt and Elmer Gantry, the world of high pressure salesmanship, and he exploits his knowledge of New Thought, Chautauqua, quack religion, the dressmaking business, the automobile industry, patent medicine, trade publications, poetry for businessmen, the whole world of boosting and commercial razzmatazz and the fast buck, all presented in a raucous tone of satiric exposure.”[1]

The stories collected in If I Were Boss throw light not only on Lewis’s development as an artist but also on the cultural scene that welcomed his work. Lewis’s business stories appeared not in obscure literary quarterlies but in hugely popular periodicals such as the Saturday Evening Post, American Magazine, and Metropolitan Magazine. The Post, especially, under its legendary editor George H. Lorimer, encouraged the work of the young man who eventually produced some of the most scathing satire ever to take aim at American business.

As Anthony Di Renzo, a teacher of professional writing and American business history at Ithaca College, notes in his useful introduction, Lorimer had revitalized the Post partly through successful serializations of business novels such as Harold Frederic’s The Market-Place (1899), Frank Norris’s The Octopus (1900) and The Pit (1901), and Lorimer’s own Letters of a Self-Made Merchant to His Son (1902). Business, Lorimer felt, dominated the lives of most Americans, yet the nation’s novelists rarely dealt with it. Most writers preferred romance, whereas Lorimer felt that in fiction “the struggle for existence is the loaf, love or sex is the frosting on the cake.”[2]

Lorimer liked Lewis’s early business stories, encouraged him to submit frequently to the Post, and paid him well. Lewis responded with stories that smoothly blended satire, sentiment, and business instruction. The satire is pointed, but not savage. A reader who knows the novels that made Lewis famous will wonder to what extent Lewis pulled his punches in deference to the requirements of writing for a magazine that sought to celebrate Main Street, not to bury it. Mr. Di Renzo reports that after Lewis published Main Street, “rumors circulated that Lorimer had refused to serialize the novel, had privately advised Harcourt to shelve the manuscript, and had recommended that the Pulitzer Committee deny Lewis the prize. These charges proved insubstantial, but they point to an actual rift–a rift that became a chasm with the publication of Babbitt” (p. xxxi).

Of special interest in this collection are four stories that involve a dazzling con man named Lancelot Todd, whom Lewis introduces, in a story titled “Snappy Display,” with words that show the writer hitting his stride as a satirist: “Lancelot is an artist of advertising; a compound of punch, power, pep, and purest rot serene. You have doubtless heard his addresses, Upward and Pupward,’ and The Smash and Lash that put the Zing! in Advertising,’… You have noticed in editorials in syndicated house-organs, and his signed advertisements of everything from cocaine to arts-and-grafts coffins. You may even own one of his books; perhaps Fishin’ for Effishincy’ or Are You Toting Old Man Sloth on Your Shoulders?’… [Lancelot] joined every possible organization, from the Jolly Bowlers to The Young Men’s Wesleyan Circle, and made a business of being familiar and agreeable with every member who had an income of more than four thousand dollars a year. He was so successful that he was no longer dishonest in money matters…. Scarcely at all” (pp. 168-70).

Lewis wrote eight stories in which Todd figures as the central character These stories appeared not in the Saturday Evening Post but in Metropolitan Magazine (seven of the eight) and in Popular Magazine. Mr. Di Renzo feels that the move from the Post allowed Lewis to sharpen his satire. “Sophisticated and irrelevant, Metropolitan targeted the urban smart set and displayed a Menckenian contempt for the entrepreneurial middle-class values of the Post. Lewis had gone over the enemy, who relished his jugular humor and wicked caricature” (pp. xxvi-vii). Even so, the stories involving Todd that appear in this collection show signs of commercial pressure. In no story is the trickster allowed to triumph; every story ends with a comeuppance.

None of the fifteen stories collected in If I Were Boss have appeared in print since their original publication. This volume makes possible a better understanding of Lewis’s development as an artist and demonstrates the ambivalent feelings aroused by American business in the early years of the twentieth century. Mr. Di Renzo’s Introduction shows a firm grasp of the commercial culture that inspired the stories and the literary culture in which the stories appeared.

[1]. Schorer, Mark. Sinclair Lewis: An American Life (New York: McGraw, 1961), p. 239.

[2]. Quoted in Baida, Peter. Poor Richard’s Legacy: American Business Values from Benjamin Franklin to Donald Trump (New York: William Morrow, 1990), p. 242.

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EH.NET BOOK REVIEW

Published by EH.NET (December 1997)

Giovanni Federico, An Economic History of the Silk Industry, 1830-1930. Cambridge: Cambridge University Press, 1997. xv +257 pp. Tables, maps, bibliography, index. $59.95 (cloth), ISBN: 0521581982.

Reviewed for EH.NET by Philip Scranton, School of History, Technology, and Society, Georgia Institute of Technology.

Dr. Federico (University of Pisa) originally published this monograph’s Italian version in 1994. This translation, which the author accomplished, represents the fifth title in the Press’s Cambridge Studies in Modern Economic History, edited by Charles Feinstein (Oxford), Patrick O’Brien (Institute for Historical Research, London), Barry Supple (Leverhulme Trust), Peter Temin (MIT) and Gianni Toniolo (University of Venice). These studies are presented as “a major new initiative in economic history publishing and a flagship series for Cambridge University Press.” This may be the intention, but neither the editors nor the Press have served their author well in this case. Through stunning inattention to editing Federico’s translated text, they jointly blunt the presentation of his research work and frustrate any but the most dedicated reader’s attempt to assess its significance. I will return to this issue after sketching the book’s methods and themes.

The purpose of this work is to offer a global history of a basic industrial commodity, silk, in order to set the performance of individual countries in the context of worldwide export competition. The Italian experience here represents the hub around which comparative analysis of Japan and China is mounted. This approach is slightly at odds with the title, for on inspection the reader discovers that “silk industry” in this instance excludes all silk fabrics, and most silk yarn, referencing instead the production of reeled silk, the first intermediate good in the trade’s production sequence. Reeling involves soaking cocoons in warm water, then unwinding the long single strand which composes each one, and assembling sets of strands on reels, from which they are removed and packaged as raw silk. This labor-intensive, low-value-added process was concentrated in the nations where silk was “grown” and harvested. As users scattered across the industrialized world, with the U.S. the largest purchaser by the late 19th century, raw silk represented a substantial focal point for international trade. Silk yarn, by contrast, was rarely exported from those nations which spun it (the trade term is “thrown”), as local weavers and knitters took up the products (tram and organized) for immediate use. There was a modest transnational trade in silk fabrics during this century, particularly at the upper end of the fashion/price range, but it did not displace the dominance of raw silk exports until after World War Two. Those who now purchase silk apparel in the U.S. can register this transition by searching for clothing items not made in China, suggesting that nation’s movement up several rungs of the production ladder from commodity exporter to manufacturer of both staple and stylish silkwear.

At the outset, the author notes that a profusion of single country commodity studies already exists, arguing that collectively they “miss a basic preliminary question: what caused exports?” (p. 2). In his conclusion, this query is phrased more concretely as “two main questions: why did world consumption increase in the long run, and what determined the competitiveness on the silk market (as represented by changes in market shares)?” (p. 191). Regrettably, Federico cannot resolve either of these matters firmly, “as the data are not sufficient.” Despite his ragged data (particularly for China), he mounts an “econometric model” which indicates that “the total growth is evenly shared between the demand and the supply side” which in turn suggests that raw silk producers “achieved very high rates of technical progress, expanding the production in spite of falling relative prices of cocoons.” (191) As for silk’s role in overall economic development, Federico appears to confirm the “conventional wisdom” that “Silk exports are deemed at best ineffectual to start development…”, noting that “Probably the causation [runs] from development to silk exports instead of the other way round.” (193). (I say “appears” because the prose in this section is unusually convoluted.) He adds: “This conclusion may be appealing but is a bit vague. Unfortunately, it is difficult to be more precise.” In the final paragraph, Federico suggests that the silk trade does not confirm perspectives on “long-run performance” which stress “institutions (in a broad sense) in of [sic] international competition” and an “active role for the state” as key to augmenting country-level competitiveness. Instead, silk’s trajectory “depended on the input endowment and, to a lesser extent, on entrepreneurship, [for the] very survival of the industry depended on the supply of low cost labor.” This of course, is a bit underwhelming as a final judgment, given that it largely reinforces received understandings of the spatial division of labor in silk’s process segments. Indeed, it’s not clear why Federico needed to fashion an econometric model to confirm this analysis, or how much the fragmented data sets impair such a formal confirmation.

The route between the problem statement and its uncertain resolution involves a thematic tour of the silk-reeling sector, rather than a three-nation chronological narrative. This makes sense, given that Federico is concerned to present both the supply and the demand sides of the growth process. For this study, chronology would have generated a good deal more repetition than does thematic ordering. Thus we commence with industry characteristics, and “The growth in the long run,” then move to chapters on consumption and demand, agricultural supply, technological change, and finally, market and state institutions. In considering whether differences among institutions mattered to the three nation’s outcomes by 1930, Federico wanders through various indicators, beset by data problems and generating mismatched conclusions (e.g., “The quantitative evidence on the transaction costs in the cocoons markets is rather scarce.” (167) “All in all, transaction costs were probably lower in Italy [than China or Japan] by a few percentage points. The benefits of the modernization of institutions were therefore relevant but not really great.” (169) “In other words, institutions were important but hardly decisive.” (170) And, given insufficient evidence on market imperfections, “one cannot rule out the presence of imperfections in the Far Eastern marketplaces. In this case, Italy’s advantage [having modern market relations] would have been substantially greater and institutions would have mattered greatly to competitiveness.” (173)). Not to put too fine a point on it, this could well have benefited from some editorial refining.

Similar problems plague other sections of the text. There are at least ten copyediting errors on page 5 alone; at p. 27, the reader encounters a statement that: “the innovation on product was non-existent, and those on process was entrusted to the producers.” On p. 51, we learn that despite chemical weighting of silk fabrics (to stretch supplies and lower costs), “there was not mass flee from silkwares,” and on the following page: “The total silk content per square yard of broadcloth in the USA fluctuated from 1899 to 1914 between 3.3 and 3.9 pounds.” (ounces!) There are, sadly, many more such blunders.

What went wrong with this effort to provide English-language readers with a comparative analysis of a commodity’s trajectory across a century crucial both for industrial development and for the dramatic increase in long distance trade in raw materials? It seems that the series editors were asleep, out of touch with one another, or indifferent to “product quality.” Yet that Cambridge University Press failed to copyedit the manuscript translation before setting it for publication is equally shocking. It would be a courtesy to Dr. Federico were the Press to withdraw and pulp the available stock of this monograph, have its editors do a properly professional job of preparing the study for an international audience, and re-release An Economic History of the Silk Industry a year or two hence. (Note, that this volume was released by CUP-UK and not by the American division.)

Philip Scranton School of History, Technology, and Society Georgia Institute of Technology and Hagley Museum and Library

Philip Scranton is the author of Endless Novelty: Specialty Production and American Industrialization, 1865-1925 (1997) and the editor of (and a contributor to) Silk City: Studies on the Patterson Silk Industry, 1860-1940 (1985).

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EH.NET BOOK REVIEW

Published by EH.NET (December 1997)

Gerald Caprio, Jr. and Dimitri Vittas, editors, Reforming Financial Systems: Historical Implications for Policy. New York: Cambridge University Press, 1997. $49.95 (hardback). 222 pp. Index, bibliography. ISBN: 0-521-58115-X.

Reviewed for EH.NET by Michael Haupert, Department of Economics, University of Wisconsin- La Crosse. .

Reforming Financial Systems is a volume of collected papers presented at a 1994 seminar entitled “Financial History: Lessons of the Past for Reformers of the Present.” The essays in this volume address a number of interesting questions that have long challenged financial historians. Any student of financial history will find at least one essay of interest in this volume.

The essays are contributed by leading scholars in the field, and the topics cover a wide geographical and historical canvas, encompassing a variety of financial systems and topics. They range from broad, historical overviews, such as the Forrest Capie piece on the evolution of central banking, to the more specific, such as Randall Kroszner’s discussion of free banking in Scotland as a model for emerging economies. All of the essays are fairly brief, thus they are not in-depth studies of the topic which they address, but they do serve as nice overviews of various topics, and all include useful bibliographies from which an interested reader can proceed. As a result, the book would serve well as a supplementary textbook in a financial history course.

The essays can be divided into three categories: general topics in banking, country-specific examples of financial institutions, and comparative studies. The first category includes the aforementioned Capie essay and one by Anthony Saunders and Berry Wilson on contingent liability banking. The second includes the Kroszner essay, Frank Packer’s historical overview of the prewar Japanese banking system, Sam Williamson’s study of the development of industrial pensions in twentieth century America, a case study of the U.S. securities market by Richard Sylla, and an historical overview of deposit insurance in the U.S. by Eugene White. The final category includes comparative studies of bank regulation in Canada and the U.S. by Michael Bordo, thrifts in the U.S. and Europe by Dimitri Vittas, and a look at universal banking in Germany and the U.S. by Charles Calomiris.

In their introductory chapter, the authors nicely synthesize the lessons to be learned from each of the essays. While covering a diverse selection of topics and geographical regions, they do have a common theme. They stress two general lessons for contemporary government authorities and financial reformers: diversification and proper incentives. Regulators and overseers need to insure in some way that financial institutions diversify their risks. As the editors correctly note, most banks- and banking systems- encounter solvency problems because they fail to diversify. While it seems rather obvious to students of financial history, officials focusing on short-run performance can overlook this important fact.

The essays in this volume illustrate the numerous methods of ensuring diversification that have been employed throughout history, ranging from competitive banking to unlimited liability to branch banking to holdings of international assets. What works in one banking environment will not necessarily work as well in another, a truism as far as historians are concerned, but a point not always appreciated by contemporary policy-makers. The point emphasized by the authors in this volume is that while the options are diverse, the lesson is straightforward: diversify.

Creating incentive systems that will induce proper behavior by bankers as well as depositors, is the second general lesson extolled in these essays. Again, a wide variety of incentive systems have been employed throughout history. This seems to indicate that just about anything can work- as long as it is properly employed. However, a word of caution to contemporary policy-makers is provided by the editors when they point out that “the temptation to draw lessons from history can be overdone. Sometimes history does not teach clear lessons, or stated differently, one has to be extremely careful in applying the so-called lessons . . . a better acquaintance with history is a necessary ingredient in this endeavor” (p. 3).

Each essay is followed by a transcript of the discussion that followed each paper presentation. I did not find these discussion summaries particularly enlightening. The transcripts are poor substitutes for actual participation in the discussion, and do not add much to the papers they follow. This, however, is a minor quibble, since you can always skip them. I think their main value is to serve as a memory jog to those who were at the conference, but did not take notes during the discussions.

Perhaps the most important and enduring lesson these authors offer contemporary policy-makers is that reform takes time. This advice is directed specifically to central bankers by Forrest Capie in his essay on the evolution of central banks, but as this collection of essays illustrates, anything worthwhile seems to be worth waiting for. It is an important lesson for government officials who are often guilty of focusing on short-run results for political reasons to the detriment of the long-run stability of the financial system.

This volume is sure to please financial historians no matter what their specialty. In addition, it should appeal to scholars of contemporary monetary regimes, especially those focusing on developing financial institutions. Finally, it should be required reading for all government officials involved with the regulation of financial institutions.

Michael Haupert Department of Economics University of Wisconsin- La Crosse

Mike Haupert’s research interests are financial history. He has published articles on the American free banking era, and currently is studying the history of financing municipal baseball stadiums.

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EH.NET ELECTRONIC REVIEW

Published by EH.NET (December 1997)

Historical Statistics of the United States: Bicentennial Edition. New York: Cambridge University Press, 1997. $195 (CD-ROM). ISBN 0-521-58541-4 (CD-ROM). ISBN 0-521-59710-2 (User’s Guide).

Reviewed for EH.NET by William Hutchinson, Department of Economics, Miami University of Ohio.

Availability of these data on CD-ROM is a great asset to those who use data from the printed version of Historical Statistics of the United States from Colonial Times to 1970. Electronic access makes it easier to use these data than when one must transfer data by hand from the book to a computer before performing statistical analyses.

Previous users of the printed version of Historical Statistics will soon realize that a few changes have been made, mostly to enhance the ease with which the data can be accessed in an electronic text. For example, all data have been placed in column form for easier access for spreadsheet users. Footnotes are numbered sequentially for an entire table, no matter how many pages the table may occupy. When new columns or rows have been added to accommodate situations where data appeared in combinations of columns or rows, footnotes were added in square brackets, [ ], to indicate the specific change. Errors noted on the Errata sheet dated February 1977 for the printed text have been corrected in the electronic version. However, the few errors that were subsequently discovered in the printed version have not been corrected. A few tables and series do not appear in the electronic version because these were in copyright and permission could not be obtained to include them.

The DynaText program that allows one to read the text and data from the CD-ROM is easy to install and use, once you have read the manual to familiarize yourself with the workings of the program. As someone who uses a PC (desktop or laptop computer) primarily for word processing, I found the instructions easy to follow and clearly written in terms that someone who is not a “techy” would understand.

Having loaded the DynaText program into my laptop, I began searching data series by first examining the Notes subcategory for Prices and then the series subcategories. Text of the notes to the series was easy to access and to read on screen. The data series that one can view on the screen at one time are limited to five columns on a twelve inch laptop screen or a fourteen inch screen. Using the View option to reduce the font size and expand the range of columns observed makes the data illegible. This is not really a major problem since most users will most likely not wish to see a larger number of columns of data at one time. That is, I would expect that most users will know the data series they wish to access and will not need to see each series before downloading the data to a file.

One is able to easily use the Table of Contents with the mouse and the scroll bar. Using the Table of Contents along with the Notes button provides all the information that one would want regarding the data. Once one has decided which series to look for it is easy to access the data series by clicking on the desired series. If one chooses, one can access the general series category and then use the Find bar at the bottom of the text screen to find the series you wish by typing in the name of the series or some part of the name. For example, typing in Wholesale Prices would move you to the next part of the text where the phrase Wholesale Prices appears. It would also list the number of times the words ‘wholesale prices’ appeared in each of the Chapters and Notes sections. By accessing the Book pull-down menu one can search either text or tables for particular words or phrases.

Annotations and Bookmarks can be inserted at desired points for future reference. One can use hyperlinks to connect various series or a series and the notes that apply to the particular series. These hypertext links can be set as either one way or two way which makes it an easy matter to navigate from one point to another that is frequently accessed in conjunction with the first.

Downloading data to your hard drive, a floppy disk or elsewhere is relatively easy because it is all menu driven. One need only use the hypertext links at the top of each table, ‘Lotus 123’ or ‘Text file’. (By going to the root level of the CD-ROM one can either access Lotus 1-2-3 files or tab-delimited text files from the LOTUS123 or TEXT directories, respectively, without first opening the electronic book.) The Lotus 1-2-3 files can be accessed directly from nearly any type of spreadsheet program. If one has a spreadsheet program that will not download the Lotus 1-2-3 files, then it will most likely download data from the tab-delimited text files. These files can be renamed and saved onto the hard drive or a floppy disk. If one is using DynaText on a network, then data can be saved to another location as desired.

When viewing a data series, the Scrollable Table option is very handy because it allows one to see additional columns and move down the columns faster than when one is scrolling down a series in the standard screen. One can also use the Find bar while in the Scrollable Table mode which enables the user to move to a new series with ease.

Use of the Journal option is very helpful if you need to repeatedly access a number of series or texts and series. Recording in a Journal sets up a group of locations to which one can move with ease by using the commands on the Journal bar. I did encounter difficulty when I attempted to use the Snapshot option for adding lines to the Journal. An “Error in Program” message kept appearing on the screen, making it necessary to reboot the computer in order to continue work. I am not sure if this is a problem with the particular CD or a problem with the program in general. It would definitely make work easier if the snapshot option in the Journal menu worked as described in the manual.

DynaText can be customized to fit the individual user’s preferences by accessing the Preferences command under the File menu. One can alter the settings for the various operations that DynaText performs while accessing Historical Statistics.

One can also access the coding used to construct the electronic form of the book, if highly sophisticated searches are necessary. The average user would not need to take advantage of this possibility.

Those who have contributed to producing this CD ROM version of Historical Statistics of the United States from Colonial Times to 1970 have provided a great service to the economic history and history professions alike. We can only wish them luck with the Millennium edition of Historical Statistics.

DynaText software for accessing Historical Statistics runs on either a PC: 386 or later with Windows 3.1+; 8 MB of RAM and a double speed CD-ROM drive. For a Macintosh, it must be a System 7 or later and have 4 MB of RAM along with a CD-ROM drive.

William K. Hutchinson Department of Economics Miami University

William Hutchinson has authored an annotated bibliography on American Economic History as well as articles on monetary policy and interregional and international trade and growth.

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EH-NET BOOK REVIEW Published by H-Business@eh.net (December, 1997)

Eun Mee Kim. Big Business, Strong State: Collusion and Conflict in South Korea, 1960-1990. SUNY Series in Korean Studies. Albany: State University of New York Press, 1997. xvii + 280 pp. Tables, appendix, notes, references, and index. $59.50 (cloth), ISBN 0-7914-3209-2; $19.95 (paper), ISBN 0-7914-3210-6.

Reviewed for H-Business by Tawni Hunt Ferrarini , Northern Michigan University

South Korean Development and Institutional Change in State and Business: 1960-90

In Big Business, Strong State, Eun Mee Kim examines the roles the state and chaebol (large, family-owned enterprises) played independently in the development of the South Korean economy from 1960 to 1990. She also wittingly analyzes how these institutions acted upon and interacted with each other to produce development during the period of review. Using theoretical tools presented by Alexander Gerschenkron in his book Economic Backwardness in Historical Perspective (Cambridge: Harvard University Press, 1962), Kim begins by highlighting both the traditional and innovative aspects of these two institutions and identifies independent as well as co-dependent features of the development-oriented political and business environments created during Park rule. Taking into account the historical roots of Korean hierarchical and authoritarian government and economic environments, Kim argues that Park’s decision to create a “comprehensive” development-oriented political environment was both effective and efficient. It was effective in the sense that it allowed individuals targeted as development agents to rely on some well known habits, customs, and norms of behavior.

These traditionally-rooted behaviors had been acquired over five hundred years of Choson dynasty rule. During Park rule individuals relied on some of their “backward” habits, customs, and norms to act upon and interact in new development-oriented economic environments. This freed some resources, and agents could direct these resources toward learning and becoming gradually familiar with new environments. Park’s comprehensive development-oriented state was efficient because it successfully guided these agents to direct their freed as well as previously idle and inefficiently allocated resources to uses that encouraged industrialization, increased investment’s share of total output, increased export activity, and decreased the percentage of South Koreans living in poverty. Statistics to support empirically these claims are found throughout Kim’s book.

Through their policies, plans, and agencies, Park and his development technocrats solicited the help of the South Korean chaebol. The majority of these businesses were controlled by individuals with power and authority over members of their same kinship groups. In fashions similar to the state, hierarchical and authoritarian modes of action and interaction dominated the behaviors of individuals involved chaebol activities. Of course, these activities were initially guided by the state and were development-oriented in many respects.

As development proceeded in South Korea, individuals learned from their development-oriented experiences throughout the political and business hierarchies. Between 1960 and 1990, some traditional ways of engaging in economic activities were eventually replaced with modern practices. Individuals learned to manage some of their own global risks and no longer needed to rely totally on development technocrats. Laborers found jobs outside of family circles. Industrial activity increased in social acceptability. Overall, development technocrats under Park rule informed private individuals about attractive business opportunities, created new job opportunities, educated their labor force, and helped develop the entrepreneurial spirit of the private individual. Kim argues that these state efforts eventually produced a new breed of people in South Korea, and these people possessed skills, experiences, perceptions, needs, wants, and desires different from the majority of individuals living in South Korea in the early 1960s and before.

Noticeable competition for political and economic power began to emerge in the early 1970s as this new breed of people emerged. Many leaders of the chaebol as well as laborers in general decreased their dependence on government officials and development technocrats to create, identify, and modify prosperous economic opportunities. These business leaders and South Korean laborers now possessed the desire, intelligence, knowledge, and experiences to buy, sell, and derive income from their privately-owned resources in domestic and international markets. Hence, a private need for the state to take on the role of the protector of property rights emerged. Kim (1997: 5) calls this type of state a limited developmental state. It is a state that moves from being plan-oriented to market-oriented. In summary, the development institutions created under Park rule in the early 1960s played a role in changing the perceptions, skills, and experiences of business leaders and private individuals. These changes, in turn, led many individuals to call for political change in South Korea.

In conclusion, Kim succeeds in telling a non-neoclassical story of economic success in South Korea. She skillfully highlights the developmental importance of recognizing the long-term roles of the neo-classical features required in individual state and business institutions, but, also, she recognizes the importance of admitting that institutional change is gradual and not instantaneous. In addition, Kim claims institutions do not act in isolation but are a part of an intricate web of political, social, and economic institutions. By taking all of this into account, Kim provides a complete analysis of changing developmental roles played by the polity and chaebol of South Korea. She could expand her theoretical base by drawing on the institutional theories of Douglass C. North offered in his books Institutions, Institutional Change and Economic Performance (Cambridge, Mass: 1990) and Structure and Change in Economic History (New York: 1981). Additionally, Kim could include in her future research a detailed study of the role played by dominant social institutions present in South Korea during her period of review. Please refer to Tawni Hunt Ferrarini’s article The Economics Behind the Role of the Korean Family Institution in the Development of South Korea, presented in William R. Childs (ed), Essays in Economic and Business History, (Columbus, OH: the EBHS and the Department of History at Ohio State University: 1996), 27-43.

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