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Organizing America: Wealth, Power, and the Origins of Corporate Capitalism

Author(s):Perrow, Charles
Reviewer(s):Howard, Vicki

Published by EH.Net (August 2003)

Charles Perrow, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism. Princeton, New Jersey: Princeton University Press, 2002. ix + 259 pp., ISBN: 0-691-08954-X.

Reviewed for EH.Net by Vicki Howard, Hartwick College, Oneonta, New York.

The last few years have seen a growing popular and scholarly interest in globalism. In an era when the power of large transnational organizations seems absolute and inevitable, works that uncover alternate ways or paths not taken in the history of American economic life perform a useful service. Charles Perrow’s new synthesis, Organizing America: Wealth, Power, and the Origins of Corporate Capitalism, tells the story of the nineteenth-century beginnings of the hierarchical, bureaucratic organizational form that would eventually transform all social and economic relationships. Perrow focuses largely on the early textile mills of Manayunk, Pennsylvania, Lowell, Massachusetts, the Kensington area mills of Philadelphia, and finally, the railroads. Although a mass-production model that celebrated and legitimized a ruthless drive for the accumulation of wealth became hegemonic by the beginning of the twentieth century, much of the nineteenth century, he argues, was typified by a flexible-production model that reinforced artisanal values and moderate wealth, and had fewer social costs and negative externalities — a model that privatized railroads would help destroy. Drawing on the insights of organizational sociology, he explains how the large, privately held, minimally regulated corporation came to dominate over other business forms in the United States. Applying organizational variables to several case studies, he attempts to construct a new paradigm for industrialization in the nineteenth century.

Organizing America privileges large bureaucratic organizations over “culture, politics, technology, efficiency concerns, and entrepreneurship” (p. 20). Such a claim requires substantial theorizing, which Perrow provides in his introduction and a chapter titled, “Preparing the Ground.” He justifies his organizational focus, arguing that while organizations are influenced by culture, they also shape culture. Drawing on Max Weber and Karl Marx, he holds that organizations worked as tools that serve particular interests and had the ability to centralize power and wealth, often at great social cost. They generated wage dependence, created divisions between different groups, and had tremendous negative effects on their external environment. Moreover, they often interacted with each other in unanticipated ways. When combined with a weak state and a legal framework that worked in favor of large organizations, corporations were able to take the form they did in the United States in the twentieth century.

Drawing on studies by Cynthia Shelton, Philip Scranton, Frank Dobbin, Walter Licht, and others, Perrow recasts his subject “in light of the organizational requisites” and finds an economically diverse America (p. 47). In the shift from an agricultural to an industrial economy, communal organization was replaced by markets, networks, and then hierarchies, though this transition did not proceed in a completely linear fashion. In a world characterized by the socioeconomic form of “community,” producers were “subsistence farmers” that engaged in little market behavior (p. 23). As economic relationships were more market-oriented, monetary exchange became more prevalent. The market stage produced a “system of small, autonomous firms with relatively skilled workers, with minimal local government units, and small cultural institutions” (p. 26). At the other end of this economic relationship was the hierarchical form, characterized by large, centralized units employing mass production and bureaucratic organizations. Some communities, like the “walking city” of Philadelphia in the early years of the century, were a mixture of market and community (p. 27). In other places, like the Lowell textile mills of the Boston Associates, organizations moved towns directly from a community relationship to a hierarchical form, without passing through a significant market or network phase. The Lowell mills continued to have elements of community, such as long-term employment, payments in kind as wages, and patriarchal authority over leisure time and religious expression. In the early nineteenth century, Manayunk and Lowell prefigured the hierarchical format that would come to dominate in the late nineteenth century. Organizing America makes the good point that this economic path was never inevitable. Drawing on Philip Scranton’s Proprietary Capitalism, Perrow puts forth an alternate model of the network system of Philadelphia, which was more typical up to the 1880s. Using the case of the highly networked textile firms in the Kensington area of Philadelphia, he shows how, unlike the hierarchically organized, large, centralized, bureaucratic firm involved in mass production and mass distribution, the smaller, innovative firms in Kensington had “more positive externalities for workers and the community” (p. 95). This network model allowed for cooperation as well as competition.

Unfortunately, with the rise of railroads, “the second big business,” this network model disappeared and the middle way gave ground to the mass-production model by the end of the century (p. 96). Moving away from the efficiency argument of Alfred Chandler, and the neoinstitutionalist argument of Frank Dobbin that argued for the importance of culture, Perrow attributed the rise of the privatized railroad organization in the United States to their campaign for private ownership and their power as “corrupters” (p. 159). Railroads, for logistical and technical reasons had to be controlled completely by whoever owned them, though this ownership could be private or public. This need for control brought about new organizations that were larger and more powerful than any seen before. In the United States, as opposed to his comparison cases in France and Britain, railroad ownership was privatized and went largely unregulated from 1830 to about 1880, after which it became a lightly regulated oligopoly. Railroad organizations were corrupt, involved in bribery, illegal financial dealings, and violation of regulatory statutes, and significantly, he argues, this corruption was organizational in origin, made possible by weak governmental institutions. In a way that was “important for the future of corporate capitalism,” railroad organizations’ corruption removed legal restraints, allowing corporations to amass greater wealth, rather than return it to the government or private investors (p. 142).

As in the rise of hierarchical organization in the textile industries, however, unregulated privatized railroads were not an inevitable outcome of history. Alternatives were possible, as the interesting case of the successfully state-owned and operated Western & Atlantic Railroad in Georgia (1836-1870) demonstrates. While divisionalization in railroad organization became the norm and the means for the creation of modern bureaucracies that allowed for the growth of massive corporations, he investigates two alternate organizational arrangements that would have distributed power and wealth more widely, without loss of efficiency. Arguing against Chandler’s inevitability thesis, he suggests that the centralized, departmental structure serving regional lines and the contracting out system were successful paths that could have been taken.

In each of his organizational interpretations of textile industries and the railroads, Perrow downplays cultural factors. Over the last decade or so many excellent histories of business and culture have appeared, all of which are absent in this story. Readers persuaded by such works might object to way Perrow privileges the organization over culture and fails to consider other categories of analysis, such as class, gender, race, or ethnicity, factors that certainly played a crucial role in labor-industrial relations and corporate life. However, readers interested in the history of economic life and in the origins of corporate capitalism in the United States will appreciate Organizing America’s new interpretation of the nineteenth-century and of paths not taken.

Vicki Howard recently received her Ph.D. in American Studies from the University of Texas at Austin. She is an Adjunct Assistant Professor at Hartwick College and is working on a book about the American wedding industry.

Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):North America
Time Period(s):19th Century

Corn and Capitalism: How a Botanical Bastard Grew to Global Dominance

Author(s):Warman, Arturo
Reviewer(s):Bogue, Allan G.

Published by EH.NET (August 2003)

Arturo Warman. Corn and Capitalism: How a Botanical Bastard Grew to Global Dominance. (Translated by Nancy L. Westrate). Chapel Hill: University of North Carolina Press, 2003 (originally published in Spanish in 1988). xiii + 270 pp. $49.95 (cloth,) ISBN 0-8078-2766-5; $24.95 (paper), ISBN 0-8078-5437-9.

Reviewed for EH.NET by Allan G. Bogue, Professor Emeritus, University of Wisconsin, Madison.

The distinguished Mexican anthropologist, Arturo Warman, published the Spanish language edition of this sweeping survey of the place of corn in world history since the sixteenth century in 1988. The colorful subtitle refers to corn’s disputed parentage and the fact that through history the crop has stayed outside “the system of accepted norms” (p. xiii). As a Mexican social scientist Warman became deeply interested in the social and economic significance of corn and planned a history of the crop’s place in Mexican life. Various scholarly projects prepared him for that work but he ultimately deferred it in favor of the current volume.

Several preliminary chapters lay a foundation for the book. Warman begins by describing the many useful American plants that have had major “repercussions” in “the development of the world economy, and the world market place.” At the heart of corn’s story, he writes, “lies the history of capitalism” (p. 11). The corn plant (Zea mays), Warman explains, has various amazing characteristics. Evolved from the grass teosinte, it does not propagate itself in nature, is self-pollenizing, is remarkably responsive to hybridization, is adaptable to a wide range of environments, has outstripped other food plants in its yields, is accommodative to complementary crops, is easily converted to edible form, and is capable of conversion into a myriad of derivative products ranging from bourbon to adhesives and automotive fuel, as well as providing livestock feed that enters the human diet as animal protein. Debate has raged as to whether the birthplace of corn was the Americas or Asia. Sketching the archeological evidence, Warman accepts Mexico as the place of origin.

Warman devotes most of the remainder of the book to tracing the history of corn in major areas of the world, dealing first with Asiatic locales. First introduced there in the early sixteenth century by the Portuguese, corn became a crop of the mountains and frontier regions and particularly a food of the poor. He links its history to the complex land tenures and labor intensive systems of cropping in that great region and the relation of this crop to other major crops including a number of other western immigrants. Corn, he explains, was an important part of the second great agricultural revolution that occurred in China during the nineteenth and twentieth centuries.

He follows with an account of the place of corn in the Atlantic slave trade. Slaves endured their passage to the new world on a diet consisting almost solely of corn meal paste, the grain’s high vitamin content warding off scurvy. Introduced primarily by the Portuguese, corn became a major crop in the African slave shipping areas and their hinterlands to meet the provisioning needs of the slavers. The crop adapted well to slash and burn agriculture. By the seventeenth century, corn was well established on the Atlantic coast of Africa and probably in much of the interior. With the decline of the slave trade in Africa, European nations developed colonial relations with its peoples. Corn now became increasingly important as a subsistence crop grown by peasants. Colonial administrators and white settlers emerged as a ruling class in the colonial dependencies and a native worker class emerged to provide labor for extractive ventures and settler agriculture. Corn products also sustained this labor sector but corn’s resistance to disease, short growth cycle, versatility, low requirements of capital and labor, and high yields also commended it to white farmers. Colonial land policies, Warman explains, benefited white interests and confined native populations in restricted areas, thus limiting native livestock operations. Hampered by natural hazards and colonial policies, peasants used corn both as sustenance and to provide agricultural surplus. Corn became, Warman concludes “one of the secret weapons in peasant resistance to colonial rule” (p. 81). In the era of national independence that followed the colonial era in Africa growth in the volume of commercial export crops — coffee, tobacco, cacao, and cotton — far outstripped growth in domestic food crops; a condition of dietary dependence prevailed. Corn flour was one of the cheapest foods per thousand calories available in urban African markets. The hope for future growth in food production in Tropical Africa lies, Warman suggests, in land reform.

Turning to Europe, Warman reviews the treatment of corn in European publications from the sixteenth century to the modern era. First grown as a curiosity in Andalusia and later as an agricultural crop, by the eighteenth century it had displaced long established cereals both in irrigated areas and in the subsistence peasant economy of northern Spain. By the end of that century corn was planted from the Black Sea to Gibraltar and, it was said, south of a line from the mouth of the Garonne to the Rhine above Strasbourg. It was often planted on land that formerly had been fallowed. Ripening at a time that had typically been one of food scarcity, it reduced the threat of famine and became the food of those who lived in “poverty, rural deprivation, and primitive … conditions.” Corn contributed vitally to the ongoing, “intellectual, political, industrial, and agricultural revolutions” then underway (p. 111). Finding no “ubiquitous and precise cultural agent” that accounted for the diffusion of corn growing through much of early Modern Europe, Warman identifies four “natural and social factors”: “growing conditions and the agricultural systems or their associated methods: population dynamics; trade, prices, and markets; and landownership and the relations of domination existing between landowners and direct producers” (p. 112). Their interaction, sometimes affected by more subtle influences, made corn “the bread of southern Europe’s poor.” But it also “generated wealth for landowners, shopkeepers and money lenders, overlords, and the new middle class,” who, ironically, ate wheat bread (p. 131). This occurred as an agricultural revolution took place between the sixteenth and eighteenth centuries involving more intensive cultivation of the land and dwindling use of fallow.

Two American agricultural exports had tragic consequences — the potato famines of the mid nineteenth century and the widespread incidence of pellagra in southern Europe and later in the southern United States. Those highly dependent on corn as a food might develop pellagra and this chronic disease, causing dermatitis, diarrhea, and ultimately dementia, battered the population of European corn growing regions during the nineteenth century. Warman describes the various efforts to explain the disease and the developing conviction that diets heavily dependent on corn were responsible. Such dependence was usually associated with poverty and such onerous rents that peasants could not eat a balanced diet. Pellagra was “a symptom of a process of fierce modernization in peripheral areas” (p. 150).

In telling the story of corn in the United States, Warman stresses the importance of Native American tutelage. “Once the settlers had fully grasped the secrets and potential of corn, they no longer needed the Native Americans. Indigenous peoples were wiped out, scattered or relocated as settlers penetrated even further inland” (p. 155). Warman’s discussion of American economic development sketches many of the familiar facts of that story. Corn was a basic crop in the long continuing American frontier experience but played “its most important and long-lasting role,” he writes, ” in the predominantly rural world of the American South” (p. 159). It was a staple of slave diets but these were apparently sufficiently varied that the slaves did not suffer from nutrition deficiency diseases. Corn cultivation was far more extensive than cotton in the South but the latter produced the wealth and contributed most to the development of class differences. Sharecroppers became so hard pressed that pellagra was endemic by the early twentieth century. U.S. Public Health Service researchers discovered that a diet rich in milk, meat, and beans countered the disease. In the 1930s the University of Wisconsin’s Conrad A. Elvehjem showed that nicotinic acid deficiency was the specific cause. The human digestive process failed to unlock corn’s content of this vitamin when it was prepared as food in certain ways. Warman here comments that “pellagra was a disease born of development, a product of a type of progress that was imposed, unjust, and unequal”(p. 173).

Prior to the nineteenth century corn’s history was “tied directly to human nutrition.” In the expanding, industrializing, railroad-building United States, however it also became “the raw material for the production of meat and dairy products” and in the first half of twentieth century the U.S. crop accounted for half of the world’s production. It was the “very backbone” of American agriculture (pp. 181, 183). During that era U.S. corn production was more or less stable. The successful development of hybrids, however, along with improvements in mechanization, and fertilizer and herbicide use resulted in unprecedented yields of the crop after World War II. Now American corn became a significant factor in the world trade in cereals. By the beginning of the twentieth century U.S. pioneer subsistence agriculture had been replaced by commercial farming but farmers still continued “to supply the largest part of the means of production”– “labor, motive power, seeds, organic fertilizers.” Now the farmer became increasingly dependent on the market for these things. A massive institutional framework developed to sustain and direct agriculture and agribusiness became the “dominant force” in American agriculture (pp. 186, 188). In 1954 the Agricultural Trade Development and Assistance Act of 1954 was designed “to use U.S. agricultural surpluses abroad in the effort to eradicate world hunger” (p. 190). Related programs followed and corn was a major element in the U.S. contribution. Because “corn entered the world market … as a food stuff for the poor and as forage for the rich it surmounted the inelasticity of demand typically associated with cereals” (p. 192).

In a final substantive chapter Warman describes the world market for food as it developed between the 1950s and the mid 1980s. Prior to World War II, Western Europe was the only major agricultural region that did not meet its own needs and also provide some export grains. By the 1960s only the United States, New Zealand, Australia, and Canada were independent producers. U.S. aid programs exacerbated this trend and “food dependence became a chronic and widespread phenomenon in many Third World countries” as did population explosions (p. 203). Wheat dominated in U.S. exports until the 1970s and then corn became increasingly important. American aid had generated “an entirely new market, whether by introducing the consumption of wheat or by displacing existing domestic production” (p. 205). The U.S., charges Warman, distributed aid with a view to its strategic political impact. The political considerations of the United States and its allies dictated the magnitudes of supply and demand, prices and the conditions of sale, that defined the world cereal market and interacted with domestic tariffs, subsidies, and other production controls (p. 209). By the 1970s five great multinational grain handling companies dominated world trade in cereals. After a food production crisis in Russia and a failure of the hybrid corn crop in the U.S. during the early 1970s, however, food production outpaced population growth. Although “corn’s incredible growth as a commodity for reexport was the most outstanding phenomenon.” most third world countries had entered a condition of dietary dependence (p. 212). Despite adequate world supplies of food at the time of writing, Warman identifies a major problem of distribution and future vulnerability to shortages.

In two concluding chapters Warman discusses the recent phenomenal expansion of food production in which corn has been an important part and the possible ways in which growth in food production may be sustained. He sees two available agricultural modes — “capitalized intensive agriculture, also known as scientific agriculture or production by the wealthy.” The other is traditional peasant agriculture, utilizing few resources beyond those readily available and controlled by the production unit. This is farming by the poor” (p. 218). The first of these, he argues, has not improved world diets in the past nor solved the problem of distribution. Advocates of the Green Revolution tried to increase production in peasant agriculture by the use of hybrid crop varieties but had very limited success because of the high costs involved. Warman identifies less expensive ways of increasing peasant production — reduction of fallowing, bringing marginal lands into production and land reform. “The only way to confront the problem of world hunger,” he argues, “is to increase peasant production, using the many and at times unimaginable means to achieve that goal” (p. 231).

In the final chapter “New Reflections on Utopia and the New Millennium,” Warman explains that he has attempted “to analyze some social processes in which corn has played an important role” (p. 232). From one perspective his book is a sweeping historical survey of the adoption of corn as a major food and feed crop in much of the world. In this respect it is a fascinating compendium of thought-provoking facts and illustrative statistics. The volume is also a somewhat sour Marxist critique of modernization and, one may argue, a defense of peasant agriculture. A few passages illustrate Warman’s perspective. Concluding his discussion of the Chinese case, he writes “Growing rural surpluses did not remain in the rural countryside or even in China itself. … They were transferred to foreign powers’ spheres of economic influence and accumulated there. Peasants were the source of agricultural know-how and labor, yet they were increasingly threatened … settling marginal lands on the nation’s domestic frontier. For many decades they accepted the destiny of peasants everywhere, unable to eat what they produced because it was prohibitively expensive. Thus they transformed corn and other American plants, previously foods for the poor, into essential resources for their very survival. They did even more, they carried out a [social] revolution” (p. 50). He summarizes the slave trade this way: “the slave trade was not destiny or fate, but a series of opportunities and limitations.” Those “opposed to slavery … were social groups with the emerging power and will to confront that circumstance. The slave trade was an aberration, but neither was it the result of a general law of historical development. Rather, it was history; something that happened, but that just as easily could not have taken place at all” (p. 65). In considering the European agricultural revolution of 1600 to 1800, Warman rejects the common assumption that it was “the result of the application of scientific knowledge to production, diffused by elites and intellectual vanguards,” preferring instead “the idea of revolution as a result of collective knowledge and collective action” (p. 119). Leaving discussion of pellagra, he argues, “Change was promoted in the periphery from above and from abroad in order to recreate society in accordance with an ideological model; the industrial millennium that sought to establish a homogenous world. … Pellagra was not simply a disease of poverty and deficiencies, but one of the many diseases of modernization, of development, of prodevelopment capitalism” (p. 150). And finally, the history of U.S. agriculture is a process of accumulation with very different and increasingly accelerated rhythms. It is also a history of inequality, of exclusion, and of subjugation. Each process created its own marginal groups” — Native Americans, rural poor, urban poor, migratory workers, food stampers (p. 193). “Marginalization threatens the American farmer, the most outstanding product of the U.S. democratic ideal” (p. 194). He contrasts these developments with the diversity, stability, community reinforcement, and population controls found in peasant societies.

Although the principle of comparative advantage was at work in the spread of corn, it was conditioned by relations of power and dominance, argues Warman; accumulated wealth put less powerful groups at severe disadvantage. He was apparently unaware of ongoing cliometric research on the profits of imperial enterprise. He does not offer a rigid formula of class differentiation; to him the process was one of diverse conditions and forces but invariably involved exploitation. In considering the sections dealing with corn’s history in the United States, Americanists will consider some of his judgments to be overstated. The achievements of American plant scientists are brushed aside in a sentence, and the mechanics of diffusion are described in terms more general than modern scholarship has achieved. Warman emphasizes the need for increasing the effectiveness of peasant agriculture’s national or regional dietary independence but he gives much less attention to the issue of population control. Warman’s translator has produced a lucid, stimulating, and informative narrative but the reviewer remains happy that he is not one of Warman’s peasants nor sentenced to relive the existence that he, himself, experienced as a farm boy, living the democratic ideal.

Allan G. Bogue is Professor Emeritus of History at the University of Wisconsin, Madison and has published widely in American agricultural and political history. His most recent book is The Farm on the North Talbot Road (University of Nebraska Press). His next article, “Oxen to Organs: Chattel Credit in Springdale Town, 1849-1900,” will appear in the forthcoming summer number of Agricultural History.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The General Textile Strike of 1934: From Maine to Alabama

Author(s):Salmond, John A.
Reviewer(s):Daniel, Clete

Published by EH.NET (July 2003)

John A. Salmond, The General Textile Strike of 1934: From Maine to Alabama. Columbia: University of Missouri Press, 2002. xii + 295 pp. $37.50 (cloth), ISBN: 0-8262-1395-2.

Reviewed for EH.NET by Clete Daniel, School of Industrial and Labor Relations, Cornell University.

Given its size and scope — it involved perhaps 400,000 workers and idled mills along the entire length of the Atlantic seaboard from Maine to Alabama for the better part of three weeks — the general textile strike of 1934 should have been a more important episode in the history of depression-era labor struggles than it turned out to be. Though certainly much larger than the battles fought in the same year by Toledo auto workers, Minneapolis truckers and warehousemen, and San Francisco dockworkers, the “great” textile strike seems not to have exerted as important an influence on the subsequent evolution of industrial unionism as these otherwise less imposing challenges to employer hegemony.

The obvious explanation of the strike’s relative unimportance is that it failed while the others, either in whole or in part, succeeded. Yet in John Salmond’s very well-informed reconsideration of the 1934 textile strike, which he insists “has not received … the attention it deserves,” the explanation of its unhappy denouement is considerably more complicated than of a good fight that ended badly.

Providing that fuller explanation is a task that Salmond is particularly well-suited to undertake. He has written widely and very astutely on several notable aspects of class relations in the South. To cite just one example, his book on Lucy Randolph Mason’s career as John L. Lewis’s eyes and ears in the South during the late 1930s affords an idiosyncratic, but nevertheless singularly illuminating, commentary on industrial unionism’s largely unavailing efforts to gain a secure foothold in the region.

Although Salmond explains that his “main purpose … is to tell the strike story,” there is very little detail in this book that specialists are likely to find truly new or fresh. Yet if it fails to disclose factual information about the strike that most scholars don’t already know, the book commends itself to the attention of even the most knowledgeable historians on the basis of what Salmond says they ought to bear in mind if the conflict is to be properly understood.

For one thing, he contends, previous commentators have too often rendered the 1934 textile strike as “a southern rather than a national outbreak.” With perhaps a little too much certitude, Salmond insists that: “Almost everything written about the strike has been from the perspective of the South and its cotton mill people …” Still, if his characterization of earlier scholarship is not entirely persuasive, he is essentially correct in claiming that most of the books, documentaries and other accounts of the strike have tended to emphasize how it played out in the South at the expense of an equally diligent effort to make sense of it in the North. Even more central to Salmond’s argument, however, is his belief that the greatest disservice to real understanding results from the failure of prior analyses to appreciate that local and regional variations made the strike more a mosaic of distinctive confrontations than an overarching conflict viewed to equal advantage from every vantage point.

If he is merely repeating a truism in contending that all history, like all politics, is local, Salmond nevertheless performs a valuable service by reminding us that perspective does matter greatly when it comes to interpreting large, encompassing events like an industry-wide strike. The utility of this observation becomes abundantly evident as Salmond demonstrates, through a focus on regional variations, that the 1934 textile strike was not, in fact, one big strike that played out in the same ways across the geographical boundaries and product diversity of a notoriously incoherent industry, but instead a collection of strikes whose often different, and even contradictory, meanings are most accessible to understanding when scholars don’t let their desire to construct a symmetrical whole obscure the asymmetries that distinguish the parts.

Of course Salmond’s determination to interpret the 1934 textile strike as a collection of related but never identical episodes of labor conflict is hardly cost free. In making so much of differences he sometimes tends to make too little of commonalities. For example, in accounting for the bitter divisions that arose between southern mill hands during the course of the strike, he too readily assumes that those who refused to strike did so out of loyalty to their employers. And while it is undoubtedly true that the paternalism of some southern mill owners had fostered such strong feelings of loyalty among their workers that joining the insurgency was unthinkable, it was probably a well-conditioned fear of the terrible consequences that awaited those who contended unsuccessfully against the enormous power of the boss that, in the end, dissuaded most non-strikers in the South from letting their anger and discontent rule their behavior.

While this is not a study so exhaustive in its scope or compelling in its analysis that it makes other scholarship on the topic less worthy of consultation, Salmond has clearly achieved the ambition that serious scholars aspire to: he has written a book that merits inclusion on everyone’s list of essential reading on the 1934 general textile strike.

Clete Daniel is Professor of American Labor History in the School of Industrial and Labor Relations at Cornell University. His books include, Culture of Misfortune: An Interpretive History of Textile Unionism in the United States (Cornell University Press, 2001). He is currently at work on a book-length biography of United Farm Workers founder and president Cesar Chavez.

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Weathering the Storm: The Economies of Southeast Asia in the 1930s Depression

Author(s):Boomgaard, Peter
Brown, Ian
Reviewer(s):Drabble, John

Published by EH.NET (July 2003)

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Peter Boomgaard and Ian Brown, editors, Weathering the Storm: The Economies of Southeast Asia in the 1930s Depression. Leiden: KITLV Press and Singapore: Institute of Southeast Asian Studies, 2000. xiv + 332 pp. US$39.90 or S$65.90 (hardcover), ISBN: 981-230-079-1.

Reviewed for EH.NET by John Drabble, Economic History, University of Sydney.

Peter Boomgaard is Director, Royal Institute of Linguistics and Anthropology (KITLV), Leiden and Professor at the University of Amsterdam. Ian Brown is Professor of the Economic History of Southeast Asia, School of Oriental and African Studies, London University. The contributors are an eclectic mix of European, American, Australian and Southeast Asian scholars. This volume is the outcome of a panel on “Short- and Long-Term Cycles in the Southeast Asian Economy: Historical Perspectives” at the First Conference of the European Association of Southeast Asian Studies, Leiden, 1995. It contains thirteen papers preceded by an editorial introduction identifying four principal themes, which constitute the headings under which the papers are grouped. These are; changes in material conditions during the slump (four papers), agricultural strategies adopted by small farmers in the face of these changes (five papers), the experience of particular local trading groups (one paper), and the response of the state (three papers). The impact of the slump on large capitalistic (primarily western) enterprises in the region receives relatively little comment. Most papers have a single country focus with, inevitably, some imbalance: Indonesia (four), Philippines (two), French Indo-China (two), Burma, Thailand, and Malaysia (one each). One paper covers Indonesia/Malaysia, and another the Philippines, French Indo-China and Indonesia.

Part 1 (Material Conditions) focuses on the question of the effects of the depression on the standard of living. Thus the prime task for each writer is to formulate the relevant criteria. P. Boomgaard (Indonesia, principally Java) presents various indices of macroeconomic data; indigenous real incomes, food consumption, crude death rates etc. J. Touwen (Outer Islands, Indonesia) argues that real incomes there were slightly lower than in Java, but the local subsistence economy was generally a stronger support network in such times. D. Doeppers (Philippines), confines himself to a single indicator, the annual numbers paying the tax to obtain the cedula personal, a type of personal registration and identity certificate. W. Wolters (Philippines) looks at conditions in four regions, each with a different major commercial crop (abaca, coconut, sugar, rice) with the indicators of welfare being food availability and merchandise sales, both per capita. I. Brown (Burma) also adopts a single measure, imports of cotton textiles. While the diversity of these criteria reflects to a large degree the availability of historical source materials for each country, the conclusions arrived at by these four scholars show a considerable degree of agreement. Despite the severity of the depression in the international economy, standards of living did not show correspondingly steep falls. Resourceful small producers developed countervailing strategies such as product diversification, a switch towards subsistence farming, notably rice, cottage industries etc. Prices of imported goods fell substantially which helped to cushion standards of living.

Part 2 (Agricultural Strategies) has some overlap with Part 1. In Besuki province, Sumatra (S. Nawiyanto), small tobacco farmers rode out the slump through strategies similar to those in Java. However, two other papers on leading rice producers, Thailand (S. Manarungsan) and French Indo-China (I. Norlund) highlight important regional differences. Thailand was not as deeply affected as its neighbor, Burma. Thai farmers were not as deeply involved in market relations, nor did they suffer comparably high levels of indebtedness and land loss as their Burmese counterparts. Government helped by reducing and finally abolishing rice field taxes altogether. French Indo-China lay somewhere in between, with farmer involvement in the export economy varying from area to area. The 1930s saw a clear trend towards diversification of exports. T. Lindblad, (Indonesia) stands somewhat apart in this section, focusing more on the macro-consequences of the slump for longer-term structural change in the national economy.

Part 3 (Trading Communities) has only a single paper, W. Clarence-Smith on Indonesia and Malaysia, describing the experience of the numerically small but relatively wealthy mercantile community of entrepreneurs of Hadhrami Arab origin. As with many primary producers, the qualities which enabled this group to survive the slump were adaptability and flexibility.

In Part 4 the role of the colonial state comes under examination. The central question asked here is whether the policies implemented were in the best (i.e. longer-term) interests of these countries. P. Brocheux (French Indo-China) finds that government action helped to stabilize the export economy but, through imperial preference, tightened trade ties with France and militated against any major moves to industrialize the colony. P. Kratoska (British Malaya) also looks at the trade effects of imperial preference, along with measures to reduce the country’s dependence on imported rice and immigrant labor. He considers the two latter to have improved local autonomy and smoothed the path to later independence in 1957. Rather surprisingly, though, he makes no mention of the government-imposed restriction of tin and rubber exports during the 1930s, a direct outcome of the slump, which had strong consequences for the subsequent pattern of structural change in the economy. A. Booth examines foreign trade and exchange rate policies in French Indo-China, Indonesia and the Philippines, concluding that these operated primarily to serve the economic interests of the colonial power when more concerted efforts to promote local industrialization might have served these countries better.

On the whole this collection of papers hangs together well. It achieves the aims of the editors (Introduction) to counter the view of earlier scholarship that the depression experience of Southeast Asia in the 1930s was a period of unrelieved and universal distress. We are given substantive evidence of the considerable variations in conditions throughout the region and, in particular, the resilience shown by small producers and some mercantile interests to ameliorate the consequences. The editors also offer some interesting comparisons with the Asian financial crisis in the late 1990s. Overall the volume is a welcome compendium of recent research and plainly presages much further research on the topic.

John Drabble was formerly Reader in Economic History, University of Sydney, Australia. He recently published An Economic History of Malaysia, c.1800-1990: The Transition to Modern Economic Growth (Basingstoke, Macmillan, and St Martin’s Press, New York, 2000).

Subject(s):Urban and Regional History
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII

Monetary Regimes and Inflation: History, Economic and Political Relationships

Author(s):Bernholz, Peter
Reviewer(s):Siklos, Pierre

Published by EH.NET (July 2003)

Peter Bernholz, Monetary Regimes and Inflation: History, Economic and Political Relationships. Cheltenham, UK: Edward Elgar, 2003. xi + 210 pp. $85 (cloth), ISBN: 1-84376-155-6.

Reviewed for EH.NET by Pierre Siklos, Department of Economics, Wilfrid Laurier University.

“But I beg of you not to despise monetary history; for I am sure that the monetary policy of a nation is often unintelligible without some understanding of the queer institutional jungles out of which it has sprung.” — D. H. Robertson

The study of monetary economics has, of late, largely left behind any pretensions of caring about the role of monetary aggregates. Typically, the conduct of monetary policy is about setting an interest rate instrument in response to some measure of output and inflation. However, as Peter Bernholz reminds us, inflation in historical terms is still largely about the behavior of the money supply and the varieties of political and other institutions from which monetary policy emanates. The book does not restrict itself to studying the perverse cases of hyperinflation (i.e., inflation rates of fifty percent or more on a monthly basis) where the power of excessive money growth is easy for everyone to see. Instead Bernholz devotes considerable space to attempting to understand what drives policy makers to permit moderate rates of inflation. The definition of moderate inflation is never sufficiently clear but this should not be held against the author. A difficulty of course is that what might be considered moderate in one country could be deemed as excessive in another. Hence, five to ten percent inflation rates would be intolerable in Germany while many Latin and South American countries might consider such an inflation performance to be stellar.

In any event, it is refreshing to see that the interaction of money and politics is not dead and that a good deal of what drives the inflation process across countries and over time can be explained in these terms. Following a general overview of the historical experience with inflation from Roman times to the present Bernholz next considers how inflation is generated under a metallic monetary regime. While the basic analysis will be familiar to all who are interested in metallic monetary standards the book instead highlights what can go wrong especially when politics put pressure on the rulers or policy makers to “beat” the system resulting in inflation. Next, Bernholz considers what he refers to as “moderate” inflation that arises under a paper money standard. Once again the long historical view is taken going all the way back to the first known paper money inflation, namely the one that took place in China under the Ming Dynasty. Once again the message is that there are varieties of moderate inflation rates and these can be explained by political events that drive politicians and institutions to generate more or less inflation than might be economically desirable. A separate chapter asks how moderate inflations are ended and, not surprisingly, the answer is complicated since the menu of available options, from outright institutional reforms to the adoption of a currency board arrangement, are available to policy makers. Indeed, history appears to teach us that policies leading to the end of mild bouts of inflation involve a sequence of policies and that the sequence need not be the same for all countries. Hence, there is no ‘one size fits all’ solution to ending inflation.

Two separate chapters deal with hyperinflations (chapters 5 and 8) and, while much of the material has been covered elsewhere, Bernholz does bring a fresh perspective on the conditions needed to successfully end a hyperinflation even though it is never entirely clear how success is precisely measured. Nevertheless, it is useful to know that there appears to be a threshold level of institutional reforms necessary before a successful end to hyperinflation is declared, even if this reviewer disagrees with the characterization that the ending of the first Hungarian hyperinflation (post World War I) belongs to the successful category while the end to the second Hungarian hyperinflation (post World War II) should be viewed as being unsuccessful. The category of “least” successful ends to high inflation all took place during the 1990s and cast a shadow on the role of the IMF, in particular, as an outside force for good advice on how to conduct monetary policy.

Finally, Bernholz devotes one chapter (chapter 6) to explaining, in both formal terms and in historical terms, that inflation produces forces that lead the public to favor or discard alternative media of exchange. There is, of course, a large literature on the currency substitution phenomenon, and Bernholz does a fine job explaining the operation of Gresham’s Law (i.e., currency substitution under fixed exchange rates) and what he refers to a Thier’s Law (i.e., currency substitution under a floating exchange rate system). Here the volume suspends a direct role for institutional factors and instead highlights society’s continued strong desire for a stable currency as most conducive to providing good economic performance.

All in all, Peter Bernholz has provided us with a highly interesting and illuminating account of the vast sweep of monetary history in easy to read historical terms. The writing is crisp and the knowledge of monetary history is breathtaking. Students of monetary history will no doubt find this a fascinating and useful volume.

Pierre Siklos is Professor of Economics at Wilfrid Laurier University, co-editor of the North American Journal of Economics and Finance, and Associate Director of the Viessmann Centre on Modern Europe. Recent publications include “Inflation and Hyperinflation” The Oxford Encyclopedia of Economic History (2003); “Foreign Exchange Market Intervention in Two Small Open Economies: The Canadian and Australian Experience” (with Jeff Rogers, former MABE student), Journal of International Money and Finance, 22 (June 2003); and The Changing Face of Central Banking: Evolutionary Trends since World War II (Cambridge University Press, 2002).

Copyright (c) 2003 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net; Telephone: 513-529-2851; Fax: 513-529-3308). Published by EH.Net (July 2003). All EH.Net reviews are archived at http://eh.net/BookReview

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Dragon Multinational: A New Model for Global Growth

Author(s):Mathews, John A.
Reviewer(s):Kolenda, Stephen A.

Published by EH.Net (July 2003)

Mathews, John A., Dragon Multinational: A New Model for Global Growth. New York, New York: Oxford University Press, Inc., 2002. x + 258 pp. (hardcover), ISBN: 0-1951-2146-5.

Reviewed for EH.Net by Stephen A. Kolenda, Hartwick College, Oneonta, New York.

John Mathews’ book provides students of international business with fresh insight into how multinational firms have evolved various divergent organizational strategies and structures to compete and grow. Mathews, a Professor of Management at the Graduate School of Management in Sydney, Australia, delivers a valuable study of the interconnectivity of business firms in the global economy.

Dragon Multinational begins with a concise description of the players in the global business arena. The text is well referenced with abundant data and examples to support Mathews’ contention that there is much to learn from the many small and medium sized firms recently dictating patterns of global economic development. Mathews has researched extensively companies that he considers newcomers, focusing on those from “the Periphery” (outside Europe, the U.S. and Japan). By examining newer companies, Mathews recognizes a change in globalization approaches from the traditional resource-rich companies’ product or process driven expansions to the more flexible, adaptive and successful approaches of the smaller newcomers.

Mathews’ book is full of new information on organizational development, which is made especially interesting by the inclusion of case studies examining Taiwan’s Acer Group, Hong Kong’s extensively Li & Fung, Singapore’s Hong Leong Group, India’s Ispat International, and Mexico’s Cemex. Of these case studies, Acer is the most developed. While it is debatable whether Acer, founded in 1976, should be characterized as either a latecomer or newcomer to the global computer industry, this highly successful firm provides an excellent assessment of Acer’s unique structure of relatively autonomous business cells. Obviously granted complete access to Acer’s managers, Mathews’ case is detailed and thorough in its depiction of Acer’s many strategic evolutions. A glimpse directly into the leadership style of Acer’s founder, Stan Shih, includes coverage of Shih’s fascination with the classic Chinese strategy game Go.

Acer also illustrates well the critical nature of successfully competing in today’s global economy through partnerships and joint ventures. Especially important for the growing numbers of new and smaller multinational firms is grasping the relationships-based global economy with its web-like interconnections. This leads Mathews to posit that accelerated business success is available to those companies that internationalize through linkages and leverage, providing evidence that huge resource rich conglomerates are not likely to dominate the global economy in the future.

Mathews’ argument, while generally deductive in reasoning, presents an original theory of how companies can become successful in today’s complex global business environment. The theory focuses on internationalization as a process — a learning experience — in which managers’ decision-making shapes their organizations both in terms of strategies and organizational structure. Innovation in these areas becomes the norm as opportunities and threats arise more rapidly and in more novel ways. New structures evolve to accommodate this mode of operating, and new strategies are needed to capitalize on the realities of an oft-changing global economic environment.

Dragon Multinational, supported throughout by innovative graphics, articulates well a process-oriented account of accelerated internationalization. Particularly insightful is a three dimensional depiction of international trajectories which compares Mathews’ new (latecomer) strategic concepts with conventional theory.

Through a detailed summary of historical and current international business theoretical frameworks, and the addition of his own, Mathews provides a valuable contemporaneous contribution to the body of knowledge about the nature of internationalization for multinational companies. The book would be especially appropriate for graduate courses seeking to extend discussions of organizational structures and strategy to include recent success stories from non-U.S. firms. Well written, and with an excellent bibliography, Dragon Multinational will surely prove intriguing to any student of international business.

Stephen A. Kolenda is Chair of the Department of Management & Accounting at Hartwick College. He has lived and taught in China and Thailand, and presented his most recent paper, Economic Development of the Golden Quadrangle, at the 50th Annual Convention of the NYS Economics Association.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Concept and Controversy: Sixty Years of Taking Ideas to Market

Author(s):Rostow, W. W.
Reviewer(s):Cain, Louis P.

Published by EH.NET (July 2003)

W. W. Rostow, Concept and Controversy: Sixty Years of Taking Ideas to Market. Austin: University of Texas Press, 2003. xii + 454 pp. $60 (cloth), ISBN: 0-292-77124-X.

Reviewed for EH.NET by Louis P. Cain, Loyola University Chicago and Northwestern University.

Walt Whitman Rostow’s Concept and Controversy is an autobiographical account of his life as an adviser. That he was an economist and a historian in addition to being a foreign policy adviser to three presidents means that his chosen topics will be of more interest to economic historians than if the book were strictly a political memoir.

Rostow, who died earlier this year at age 86 while still a member of the University of Texas faculty, addresses eleven policy issues in more-or-less chronological order. They are: the use of air power in Europe during World War II, the US and the USSR (1945-1989), the death of Stalin, “Open Skies,” the use of foreign aid, Korea, the Kennedy-Johnson guideposts, China, Vietnam and Southeast Asia, the US urban problem, and the world population problem. Each topic is given a chapter. In the penultimate chapter, Rostow notes that the “binding thread” in the ideas he “took to market” is the desirability of “introducing long run factors into the making of current policy” (p. 346). This follows from his proposition that “what economists call the long period is, in fact, the sum of what we do or fail to do over short periods of time” (p. 346). Inasmuch as these issues span a period of sixty years, there has been ample time for him to test the veracity of this proposition.

It should be noted that the first five chapters are three times longer than the remaining six. The material in these chapters builds to the discussion of the use of foreign aid, but the discussion becomes relatively disjoint thereafter. The first chapter touches on his background, particularly his undergraduate years at Yale and those as a Rhodes scholar at Oxford. The second chapter begins with the work he did on the Gayer project, but it is most concerned with his work in the Enemy Objectives Unit during World War II (his chief, beginning in March 1943, was Charles Kindleberger). The main debate presented in the chapter is the appropriate target for air attacks before D-Day. The specifics are non-economic, but Rostow reaches a very general conclusion: “the saga is a remarkable demonstration of the power of abstract intellectual concepts over the emotions of men and the behavior of institutions” (p. 58).

The next three chapters analyze the Cold War from Potsdam to perestroika (including his crusade within the State Department for a united Europe beginning in 1946), the death of Stalin, and Eisenhower’s proposal for mutual aerial inspections via “Open Skies.” These chapters lead to what for many economic historians will be the pivotal chapter in the book, Rostow’s discussion of the debate over foreign aid. All four chapters provide ample evidence why the subtitle of his much-debated The Stages of Economic Growth (1960) was A Non-Communist Manifesto.

The chapter on foreign aid begins with the Kennedy-Cooper initiative to provide economic development aid to India. The debate quickly expanded beyond a single country to become “whether tax resources should be explicitly set aside in support of economic development in countries not allied with the United States in military pacts” (p. 220). The debate raged internally over the first five years of the Eisenhower administration, but, in 1958, those like Rostow who believed “the destiny of the developing world mattered to the West” (p. 200) began to see progress. With the coming of the Kennedy administration in 1960, support for foreign aid could advance through executive initiatives. Among the first conclusion of this section was what Rostow terms “a chastening fact:”

The pathbreaking victories won … did not come about because, at last, we persuaded the opposition that our long-term arguments were right. They came about because a series of short-term crises emerged in the developing regions, which forced on responsible politicians an acute awareness of the political and strategic danger of not assisting the process of development in Latin America, Africa, the Middle East, and Asia (pp. 245-46).

He ends the chapter by trying to answer two important questions. First, was the Soviet Union’s development effort a significant challenge? His answer is yes, but, after 1958, it is hard to know how much Soviet aid was offensive as opposed to defensive. In the context of the U.S., he notes that “the fact that the United States did commit itself seriously to programs of development aid did not increase the number of U.S. military and political allies; but it probably did create a better balance between U.S. and Soviet political influence than would have otherwise existed” (p. 250). The second question is whether this aid bettered the human condition? Rostow does not answer this directly, but he does note that “sustained economic growth in the third quarter of the twentieth century was not a statistical artifact nor a process insulated from the life of the average citizen” (p. 251).

As noted, from this point onward, the chapters get shorter. The subtitle of the chapter on Korea is “My Marginal Association with a Miracle.” His emphasis in the inflation chapter is his concern for tying policy to productivity. His discussions of China, economic development in his adopted home (Austin, TX), and the world’s population problem are similarly constrained.

Given that the current book is about “taking ideas to market,” one is surprised by the short shrift the Vietnam period receives. Rostow notes that he has written on these issues elsewhere (Diffusion of Power in 1972 and a 1994 review of Robert McNamara’s book in the Times Literary Supplement). Here he writes on the “central issues,” but the question in the subtitle of this chapter (Should the Ho Chi Minh Trail Have Been Cut?) suggests his focus. His answer is yes. The key to Rostow was President Johnson’s decision that U.S. forces would remain within the borders of South Vietnam; the strategic cut Rostow and others proposed in the Ho Chi Minh Trail would have been inside Laos. Johnson held to his “rules of engagement” because he feared causing a larger, possibly nuclear, war.

I owed him [Johnson] my best prayerful advice. But I did not owe him my public opposition. I agreed on the whole with the domestic and foreign policies of the president. So I stayed with Johnson to the last day, while steadily but quietly opposed to the way the war was being fought (pp. 302-03).

This book will prove an important resource to economic historians of the Cold War, particularly those looking for details of the political economy of economic development. I suspect other economic historians will be attracted to this book only if they have an interest in the political history.

Louis P. Cain is Professor of Economics at Loyola University Chicago and Adjunct Professor of Economics at Northwestern University. With the late Jonathan Hughes, he is author of American Economic History (2003).

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Railroads and American Law

Author(s):Ely Jr., James W.
Reviewer(s):Hudspeth, Harvey G.

Published by EH.Net (July 2003)

Ely Jr., James W., Railroads and American Law. Lawrence, Kansas: University Press of Kansas, 2001. ix + 365 pp. $39.95 (hardcover), ISBN: 0-7006-1144-4.

Reviewed for EH.NET by Harvey G. Hudspeth, Department of Social Sciences, Mississippi Valley State University.

The History Book of the Month Club refers to this as the “first comprehensive legal history of the rail industry” which “chronicles the advent of the railroad and its impact on American law.” On that point, I have no argument. Regrettably, by nature, both railroads and American law are considerably dry subjects. A combination of the two therefore should not prove to be much better. While James Ely does attempt to challenge this notion in his latest work, I seriously doubt anyone is going to sit around and wait for the movie to come out. Nevertheless, Ely’s Railroads and American Law is a very thorough and comprehensive study of the joint evolutions of both railroads and the law. It is a work to which serious scholars of either or both subjects should pay special attention.

Seemingly deliberative in its effort to dichotomize between history and the law, the book can easily be divided into three distinct sections. While chapters one through four concentrate mainly on the development of railroads in the nineteenth century, chapters five through nine concentrate more on specific areas of the law. These include topics ranging from slavery and segregation to insolvency and liability for personal injury. Chapters ten through thirteen then pick up with the development of both railroads and railroad law through the twentieth century. While you cannot really separate neither law from history nor history from law, as both a historian and a former practicing attorney, I had little difficulty in determining which chapters would appeal mainly to the former as opposed to the latter.

In his epilogue Dr. Ely, a professor of both law and history at Vanderbilt University, recounts the various themes that emerge from his study. While he is most persuasive in dispelling the myth that the federal government allowed nineteenth century railroads to operate in an atmosphere of “total laissez-faire,” his argument that railroad regulation was based largely on political and regional concerns is not exactly new to most historians. On the other hand, Ely’s contention that railroad policy was determined more by legislators than judges is new and he does much to refute the long-held view that Gilded Age courts were essentially the “handmaidens” of the railroad industry. Finally, Ely does an excellent job in tracing the evolution of both the railroads and railroad law from local to national entities.

Ely goes on to argue that the federal government’s attempt to regulate America’s railroads has, at best, left a “cautionary legacy.” Noting that the vaunted reforms of the Progressive Era were mistakenly aimed more at previous problems than future potential difficulties, he concludes that these regulations were ultimately self-defeating insofar that they placed the industry in a straightjacket that inevitably led to its economic decline. In the decades that followed, the bureaucracy’s remedy to this was to impose even further unrealistic regulations that only served to make matters worse. In the meantime, Ely reasserts his prior contention that the courts, rather than issuing rulings deliberately designed to bolster the railroads at the expense of “weaker segments of society,” instead “made no persistent attempt to shield railroads from public controls.”

In his conclusion, Ely maintains his prior assertion that the development of the railroad industry in the nineteenth century helped stimulate the corresponding development of railroad law which in turn established the model for our current law on monopolies and American industries overall. While legislators and judges might have occasionally been guilty of being overly protective of railroads as a means to encourage overall economic growth, these interests had to ultimately be balanced by other considerations affecting the overall American public. As our fears of a dominant railroad monopoly have long since vanished in favor of growing fears over potential monopolies in other industries, Ely’s study is undoubtedly a good model in which to predict the future.

Dr. Harvey G. Hudspeth is a graduate from the University of Mississippi and currently serves as History Program Coordinator at Mississippi Valley State University. A former practicing attorney, he has published two articles related to nineteenth century railroad development in the West Tennessee Historical Society Papers.

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Bank for International Settlements: Evolution and Evaluation

Author(s):Baker, James C.
Reviewer(s):Endres, A.M.

Published by EH.NET (July 2003)

James C. Baker, The Bank for International Settlements: Evolution and Evaluation. Westport, CT: Quorum Books, 2002. xvi + 259 pp. $64.95 (hardcover), ISBN: 1-56720-518-6.

Reviewed for EH.NET by A.M. Endres, Department of Economics, University of Auckland.

The purpose of this book is to outline the history of the Bank for International Settlements (BIS) and provide an evaluation of its operations from the 1930s to the present. The BIS is one of the oldest international organizations in existence and certainly the oldest international financial institution. As with other international organizations created in the interwar period the BIS was established to foster international monetary cooperation, with its services rendered to national central banks.

James Baker’s objective is to discuss and analyze the history, administration and operations “in general” (p. 3) of the BIS. The original purpose of the BIS — “the coordination and settlement of Germany’s World War I reparations payments” — was only incidental to later objectives as explained in Chapter 1. Changes in the BIS organization and financing since 1930, including details of changing membership, its financial operations, and its day-to-day functions are then explained. The BIS now acts as a bank for central banks; 49 central banks are now BIS members including the U.S. Federal Reserve System, which joined belatedly in 1994. The author covers such topics as BIS committees and research contributions; the BIS role as an international supervisor of national banks including its contribution to harmonizing banking regulations across countries; the Basel Accord on bank capital adequacy principles; the BIS role in international payments systems and settlements including its new-found functions in dealing with modern financial derivatives; the relationships between the BIS and central banks and other international financial institutions such as the World Bank and IMF; the BIS’s role in counteracting later twentieth century currency crises; and the evolving BIS role in formulating standards for, and supervising, insurance operations . There is also a separate, ‘catch-all’ chapter on “Research and Miscellaneous Activities” which does very little work for the author and leaves the reader puzzled as to why so much space is devoted to BIS committee work on such things as the Y2K problem (chapter 11). Chapter 12 promises to generate more reader interest because it deals with the controversial part played by the BIS in laundering Nazi gold during 1939-1945. However, while it is asserted that “history shows that the BIS did, in fact, enter into illegal transactions in gold” (p. 215) during the Second World War, there is very little historical documentation presented to support the argument. Tables in Chapter 12 on gold transactions of the Reichsbank and gold shipped to Swiss commercial banks by the Reichsbank prove nothing at least as far as the alleged illegality is concerned.

Serious scholars may be interested in deeper issues related to the evolution of international financial institutions such as the BIS — its administrative structure, the doctrines informing its actions, its technical functions, and the extent to which it achieved its substantive objectives. The BIS emerged over time as a major international organization charged with the task of increasing “the efficiency of regulatory and supervisory efforts aimed at improving the international banking system” (p. 25) and it ultimately claimed a major place in world financial affairs; it became part of the international cooperative effort post 1945 to ensure the stability of the international financial system. This book does not really succeed in explaining how the BIS successfully carried out its functions. To be sure, Baker deals with his subject matter in a manner accessible to a wide readership. All this may be the book’s main virtue. Serious scholars and experts in international financial affairs will not be satisfied. The author’s sources are invariably journalistic: for example, The Banker; The Economist; The Wall Street Journal; Time; The New York Times; Newsweek; Euromoney; Asia Business and countless internet sites referring to material dealt with in each chapter and acting as documentary support. Baker does not gather from these sources much more than a pastiche of topical materials none of which explains precisely how the BIS rendered the international financial system more stable and efficient. While it is admitted that the “BIS did not open its archives until the 1990s” (p. 221), I find no evidence in this book that the BIS archives have been consulted. Research on the important topics treated in this book cannot be conducted effectively by browsing internet website pages.

Baker’s overall argument is that the BIS has evolved with changing circumstances and helped create international financial order. The BIS has remained relevant; it “has expanded from a regionally oriented agency to a financial institution with global outreach” (p. 241). While it has not been successful acting jointly with other international organizations in solving regional economic and currency crises, it has been a focal point for cooperative efforts among central banks that supplemented IMF and World Bank action. Baker praises the BIS for its reputation as a pre-eminent economic forecaster and disseminator of financial data, for its efforts in reducing Y2K problems, for coping with technical innovations in international finance and insurance, for encouraging transparency in financial transactions across national borders and for dealing with international money laundering. It is not clear why most of the achievements could not be brought within the ambit of private, international commercial banks. Most financial, insurance and related arrangements and regulations have been harmonized spontaneously within the European Monetary Union and, even earlier, within the United States of America and so forth, without the need for such organizations as the BIS. The BIS is revealed to be a rather closed club for central bankers increasingly without clear lines of accountability to national governments. It is now essentially an international service organization offering no good reasons for closing its shareholder register in 2001 to private investors. Baker reports this development directly from a BIS “Press Release 2001” and, as with many other institutional arrangements discussed in this book, he takes the matter as settled. In short he remains far too uncritical of key decisions and functions of the BIS.

Altogether this is a disappointing book. A systematic, comprehensive study of the evolution of the BIS since its inception has yet to be produced.

A. M. Endres is Associate Professor of Economics at the University of Auckland. Recently he has published (with G. Fleming) International Organisations and Economic Policy, 1919-1950 for the Cambridge University Press “Historical Perspectives on Modern Economics” series. He is currently engaged in preparing a book entitled Leading Architects of the International Financial Order from Bretton Woods to the 1970s for the Routledge “International Studies in Money and Banking” series.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry

Author(s):Symeonidis, George
Reviewer(s):Levenstein, Margaret C.

Published by EH.NET (July 2003)

George Symeonidis, The Effects of Competition: Cartel Policy and the Evolution of Strategy and Structure in British Industry. Cambridge, MA: MIT Press, 2002. x + 542 pp. $55 (cloth), ISBN: 0-262-19468-6.

Reviewed for EH.NET by Margaret C. Levenstein, Department of Economics, University of Massachusetts and University of Michigan Business School.

This well-written, careful, and insightful book examines the impact of the 1956 Restrictive Trade Practices Act; this Act effectively outlawed most price fixing agreements in Great Britain. Symeonidis is particularly interested in two related questions. First, what was the impact of this increase in competition on the level of concentration of British industry? Second, what was the effect of increased competition on innovation and advertising in British industry? He finds that, in all industries, the ban on cartels and the resulting increase in competition led to increases in industry concentration. He argues that increases in competition decreased profits; those profits were restored by reductions in the number of firms in the industry. He finds that, in industries that spent a lot on advertising, those expenditures fell slightly following the elimination of cartels. Advertising was apparently an alternative to price competition. When price competition increased, firms no longer needed and could no longer afford the same level of advertising expenditures. Concentration increased in advertising-intensive industries, but the increase in concentration took place over a longer period of time than in industries with relatively low levels of advertising. He finds that, in industries that spent a lot on research and development, the rate of innovation, both as measured by R&D expenditures and as measured by innovative output, did not change as a result of the increase in competition. But the resulting increases in concentration in R&D-intensive industries were quite substantial.

Symeonidis addresses two theoretical issues that are central to industrial organization. First, he quite explicitly critiques the Structure-Conduct-Performance paradigm. In particular, he rejects the argument that that industry structure — the level of concentration — determines industry conduct — the intensity of competition. Instead he builds on the work of his advisor, John Sutton, to turn S-C-P on its head, arguing that “firm conduct, which is partly determined by exogenous institutional factors, is an important determinant of market structure” (pp. 87-88).1 That is, market structure is not determined, as thousands of students are taught in introductory microeconomics courses every year, by the size of the market and the technology of production. It is determined as well by the strategies pursued by the firms in the industry, by the institutions that govern the nature of competition in the industry, and by the history of competition and cooperation in the industry. This is the most profound point of this whole line of research and it is borne out by this work.

Empirically, Symeonidis finds that there is a simple correlation between industry concentration and the existence of a collusive agreement in the industry. But he argues that capital intensity is what actually increases the likelihood of collusion and that once capital intensity is controlled for, the apparent correlation between industry concentration and the propensity to collude disappears.

[T]here is no evidence of any linear association [between concentration and collusion], although a non-linear relationship is present in some regressions, with both very low and very high concentration hindering collusion. There is strong evidence that collusive pricing is less likely in advertising-intensive industries than in low-advertising industries, and weak evidence that it is less likely in R&D-intensive industries than in low R&D-industries (p. 81).

The second major issue that Symeonidis tackles is the relationship between concentration, competition, and innovation. Much of the existing literature takes industry structure and firm size as exogenous and asks whether more concentrated industries of larger firms are more or less innovative than industries made up of many small firms. Symeonidis’s approach, again following Sutton, treats industry structure as endogenous and the intensity of competition as exogenous. He argues that, if firms are competing intensely, then small firms in an unconcentrated industry will not be able to recoup their investments in R&D. The only way to support R&D if firms are competing intensely in price is to reduce the number of firms in the industry. If price competition is less intense, then an unconcentrated industry structure can still support high R&D investment. His empirical finding is consistent with this argument. When the intensity of price competition increased because of legal changes, firms did not decrease their expenditures on R&D. Instead, concentration in these industries increased, reducing the average number of firms in an industry by about twelve percent (pp. 312-313) and increasing the five firm concentration ratio by about ten percent (p. 265). He hypothesizes that the impact of increased competition was on concentration rather than on R&D expenditures because of the nature of competition in industries that invest a lot in R&D. Any firm that chose to spend less on R&D would quickly become unable to compete at all in an industry where innovation is important. So firms either maintained their R&D expenditures or exited; there was no in-between option.

He does find “evidence of a strong negative relationship between collusion and the number of innovations produced across UK manufacturing industries within the [high R&D intensity industries] during the 1950s” (p. 83). In fact, his measure of innovativeness is three times as high for industries without cartels as those with them. But he argues that this does not necessarily mean that collusion undermines innovation. Most of the inter-industry differences in innovation are attributable to “time-invariant industry characteristics [such as] technological opportunity [and other] … variables difficult to measure or to observe, including random events” (p. 259). In industries with high returns to R&D, Symeonidis argues, it may simply be harder to maintain collusive agreements.

He finds a somewhat different empirical result in his study of advertising-intensive firms. His analytical model of advertising is essentially identical to his model of R&D. Firms choose to invest in either R&D or advertising; by doing so they increase consumers’ willingness to pay for their products in the future. In different industries, the effect of R&D or advertising on consumers’ willingness to pay differs, but the payoff is known in advance and is completely exogenous. But while for R&D-intensive industries, the effect of increasing competition was felt solely in increased concentration, with no change in R&D expenditures, the effect of the 1956 Act in advertising-intensive industries was felt both in advertising expenditures and in increased concentration. Symeonidis argues that the reason for the difference in the impact of advertising and R&D is that while high-intensity and low-intensity advertising firms can co-exist within a single industry, competing against one another, it is much harder for low-R&D firms to compete against high-R&D firms, by offering a low price. So there is more homogeneity within industries with respect to R&D than there is with respect to advertising.

Symeonidis finds that industries without cartels have much higher advertising expenditures than cartelized industries. He argues that this is not the result of collusion to reduce advertising expenditures; rather firms are more likely to turn to collusive pricing in industries where advertising is ineffective. He argues that this is why during a period of declining advertising intensity (because of the advent of television and other exogenous changes), advertising fell more in formerly collusive industries than in non-collusive industries. Those were industries in which advertising was less effective to begin with.

Symeonidis’s treatment of advertising will not be entirely satisfying to advertising historians who have analyzed in detail the active role that firms play in shaping their markets and their consumers to influence “the effectiveness” of their advertising dollars. But even if Symeonidis’s assumption of the exogeneity of advertising effectiveness is not literally correct, it is still useful to the advertising historian to learn how an increase in competition affects firms’ investments in advertising. Symeonidis is careful enough in framing his questions that none of what he finds is vitiated by the assumption of exogeneity, so there is much that non-quantitative historians or those who don’t use formal models can learn from this analysis.

This book is based on a dissertation written under John Sutton at the London School of Economics. Sutton’s work illustrates that the divide between economic theory and economic history is not necessary, and that bridging those gaps can have real payoffs. While most of Sutton’s own research is theoretical, he draws heavily on historical and empirical studies of industrial organization. He pays attention to historical detail and to the ways that history shapes present possibilities. Symeonidis’s study reflects and does proud Sutton’s tutelage. It uses theory, empirical data and formal econometric analysis, and qualitative historical and institutional analysis to pull together a very elegant treatment of the shift in British competition policy (what we in the United States call “anti-trust policy”) from one that was permissive regarding explicit price-fixing or output-restriction agreements to one that banned them. The study places this policy change in its historical context, relying largely on secondary sources for its political and institutional analysis. Symeonidis uses an extremely carefully and conscientiously developed data set to evaluate the theory. The appendices outlining the collusive agreements from which Symeonidis constructed his data set will, all by themselves, make this book one of value for historians of British industry and the history of industry cooperation. He also presents several case studies of individual industries. These case studies are quite nice in illuminating the dynamics of the story that he tells, as well as demonstrating the usefulness of economic theory in understanding industry history, even where the history seems to be at variance with the standard model.

Symeonidis’s finding that the 1956 change in competition policy led to a decline in the number of explicit price-fixing agreements in British industry, and that that the resulting increase in competition led to a subsequent increase in concentration will ring familiar to the ears of many. U.S. economic historians have frequently noted a similar pattern following the introduction of anti-trust prohibitions in the United States in the late nineteenth century. In the United States the 1890 Sherman Act ban on price fixing preceded by twenty-five years the Clayton Act regulation of mergers. In the intervening twenty-five years, concentration increased significantly in a large number of U.S. industries. Current European Union policy is similarly quite clear and explicit about limitations on price fixing and output restrictions, but the European Courts have limited the European Commission’s attempts to enforce a rigorous merger policy. Ongoing discussions in the World Trade Organization and among developing countries favor a sequencing of competition policies, with bans on explicit price-fixing and output-restriction preceding the development of merger policy. Symeonidis’s work provides a timely reminder about the unintended effects of such sequencing. Rather than achieving greater competition, we may instead find ourselves with greater concentration. That increase in concentration will not be reversed by itself, but can have long-lasting effects on things as varied as the direction of innovation and in important industries like communication and media, the vibrancy of democracy.

The theoretical model presented in the book assumes that the profits of the firms that remain in the industry increase as other firms exit, but the mechanism for this increase in profit is not made explicit. In particular, it is left open whether the increase in profits arises from an increase in prices, say as a result of Cournot competition, or a decrease in costs, as a result of higher cost firms being the first to exit the industry. Symeonidis is careful not to rule out either of these possibilities. And while they are both consistent with the theoretical and empirical findings of the book, the difference between the two — increases in price or decreases in costs — is extremely important for policy analysis.

The process by which concentration adjusts in response to changes in profits is through entry and exit. Thus the assumption of free entry and exit, even in the presence of collusive agreements, is critical. Symeonidis specifically tests this assumption in the book. He finds that long-run profits do not change for firms in formerly collusive industries (though they do dip following the dissolution of their cartels). He argues that if cartels had created barriers to entry, long run profits would have fallen after the demise of the cartel. Another possibility is that the actions that cartels take to restrict entry, such as creating joint distribution mechanisms or restricting the diffusion of technological knowledge, may continue to restrict entry even after formal collusion is abandoned. He correctly concludes that “… the monitoring of entry conditions into industries is a key priority for competition policy” (p. 20).

Symeonidis’s analysis of the effect of the 1956 Restrictive Trade Practices Act on research and development and advertising expenditures also depends on the assumption that these strategic variables were not themselves the subject of collusive agreements. Rather, changes in R&D and advertising in formerly collusive industries are the result of increases in price competition among the extant firms, not the result of a change in the collusive agreement per se. He has carefully examined the agreements among the firms in his sample and notes that it was quite rare for them to include any agreement or restrictions on investment, R&D, or advertising. The one exception to this was in the electrical and electrical equipment industries, where patent pooling agreements were quite common. There have been several important recent theoretical contributions that model “semi-collusion” where prices are agreed upon but investment is not.2 Symeonidis’s work will help to ground that growing line of theoretical research.

We should be careful not to presume that we can extend this finding — that collusion focuses on prices and quantities and ignores other important strategic variables, such as advertising and investment — to other cartels. As Symeonidis acknowledges, these agreements were written in a particular historical, legal, and institutional context. Many of these agreements were made in relatively unconcentrated industries and were explicitly open to any new entrants to the industry. He even speculates that the agreements that were submitted were often somewhat different from industry practice prior to the passage of the 1956 legislation, as they were crafted so as, hopefully, to meet the approval of the Monopolies and Restrictive Practices Commission. (Most did not.) Thus they were quite explicitly relatively weak agreements. That has not always been the case in more recent, secret, illegal cartels. For example, in a recently prosecuted international cartel, trial testimony indicates that graphite electrode manufacturers from the U.S., Japan, and Germany did discuss long-term investment plans and modify them to facilitate continued collusion.3

One important question is whether or not the agreements Symeonidis studies were actually effective. This is particularly relevant given the convincing evidence that that entry was easy and was accommodated by incumbent firms and that the agreements did not restrict investment. Symeonidis argues that they were effective, but what he shows is that members followed the agreements, not that the agreements raised prices above or restricted output below “competitive” levels: “The available case-study information on collusive prices also supports the view that the agreements were, in general, effective. Prices of outside firms were typically lower than the cartel prices, although sometimes they were identical or only marginally lower” (p. 38-9).

Thus it is possible that in many industries eliminating formal agreements had little effect on the intensity of competition. Still, Symeonidis does find changes in concentration in industries that were required to eliminate their agreements that were significantly greater than in other industries. This alone provides support for his contention that the agreements did restrict certain kinds of competition.

Symeonidis gives long detailed descriptions of, and justifications for, the variables he chooses to use in his empirical analyses. These do not always make for scintillating reading, but they are refreshingly honest and allow for a fair and complete appraisal of his findings. They also provide an excellent example of how an empirical researcher can grapple with complex issues arising from economic theory, econometrics, and specific historic events and make choices that allow one to draw useful conclusions about both history and theory, despite all.

Notes: 1. See John Sutton, Sunk Costs and Market Structure: Price Competition, Advertising, and the Evolution of Concentration, MIT 1996, and Technology and Market Structure: Theory and History, MIT 1999.

2. See, for example, C. Fershtman and N. Gandal, “Disadvantageous Semicollusion,” International Journal of Industrial Organization, 12 (1994), 141-54; C. Fershtman and E. Muller, “Capital Investment and Price Agreement in Semicollusive Markets,” RAND Journal of Economics, 17 (1986), 214-26; F. Steen and L. S?rgard, “Semicollusion in the Norwegian Cement Market,” European Economic Review, 43 (1999), 1775-96; and C. Fershtman and A. Pakes, “A Dynamic Oligopoly with Collusion and Price Wars.” RAND Journal of Economics, 32:2 (1998), 207-236.

3. Margaret C. Levenstein, Valerie Y. Suslow, and Lynda Oswald, “Contemporary International Cartels and Developing Countries: Economic Effects and Implications for Competition Policy” Antitrust Law Journal, 71:3 (2003).

Margaret C. Levenstein is Associate Professor of Economics at the University of Massachusetts and Visiting Associate Professor of Business Economics and Public Policy at the University of Michigan Business School. Her current research interests include international cartels and international competition policy and the role of local and regional financial institutions in economic development. She is the author of Accounting for Growth: Information Systems and the Creation of the Large Corporation (Stanford University Press, 1998). She is working on a book with Valerie Suslow and Simon Evenett entitled International Cartels in Global Markets. The three are also the co-authors of “International Cartel Enforcement: Lessons from the 1990s,” The World Economy: Special Global Trade Policy Issue, 24:9 (2001), 1221-1245.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII